Lao PDR: Small Towns Water Supply and Sanitation Sector ......TA 4875-LAO: Small Town Water Supply and Sanitation Sector Project Final Report December 2007 Page (ii) GHD Pty Ltd ABN

Technical Assistance Consultant's Report ___________________________________________

Project No. TA 4875 (Lao PDR) December 2007

Lao PDR: Small Towns Water Supply and Sanitation Sector Project

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

FINAL REPORT VOLUME 1

MAIN REPORT

20 December 2007

LAO PEOPLE’S DEMOCRATIC REPUBLIC MINISTRY OF PUBLIC WORKS AND TRANSPORT

DEPARTMENT OF HOUSING AND URBAN PLANNING

SMALL TOWNS WATER SUPPLY AND SANITATION SECTOR PROJECT

(ADB TA 4875-LAO)

Prepared for

Asian Development Bank

SAVANNAKHET

PAKSE

THAKHEK

LUANGPRABANG

VIENTIANECAPITAL CITY

M. Long

M. Viengphoukha

M. Pha oudom

M. Huoixai

M. Pakbeng

M. Khop

NamthouamM. Add

M. Vangvieng

M. Kasy

Nonhay

M. Botene

M. Nonghed

Mekong River

M. Sepone

M. Songkhone

M. SaravaneM. Lakhonepheng

M. Xaysetha

M. Champasack

M. Pakxong

M. Thateng

TA 4875-LAO: Small Town Water Supply and Sanitation Sector Project Final Report

December 2007 Page (ii)

GHD Pty Ltd ABN 3900 8488373 Head Office Level 8, 180 Lonsdale Street Melbourne. VIC 3000. Australia. Telephone: 61-3-8687 8199; Facsimile: 61-3-8687 8111; Email: [email protected] Project Office c/- Project Coordination Unit for TA4875-LAO, Department of Housing and Urban Planning. 4th Floor, Urban Research Institute, Dongpalane Road. Vientiane. Lao PDR. Telephone: 856-21 263362; Facsimile: 856-21 453128; Email: [email protected]

Document Status Reviewer Approved for Issue

Rev No Author Name Signature Name Signature Date

1 Peter Cooper Dr M O’Dell Peter Cooper 20 Dec 07


December 2007 Page (iii)

TABLE OF CONTENTS

VOLUME 1 – MAIN REPORT 1. EXECUTIVE SUMMARY ......................................................................................................... 1-1

1.1 Project Description .......................................................................................................... 1-1 1.2 Rationale ......................................................................................................................... 1-1 1.3 Project Impact and Outcome........................................................................................... 1-2 1.4 Candidate Towns ............................................................................................................ 1-2 1.5 Outputs............................................................................................................................ 1-4 1.6 Project Cost Estimate...................................................................................................... 1-7 1.7 Financing Plan................................................................................................................. 1-7 1.8 Tariff Reform ................................................................................................................... 1-7 1.9 Executing Agency and Implementation Arrangements.................................................... 1-8 1.10 Implementation Period .................................................................................................... 1-9 1.11 Readiness to Implement the Project................................................................................ 1-9 1.12 Procurement.................................................................................................................... 1-9 1.13 Consulting Services......................................................................................................... 1-9 1.14 Public-Private Partnerships ........................................................................................... 1-10 1.15 Economic and Financial Analysis .................................................................................. 1-10 1.16 Project Benefits and Beneficiaries................................................................................. 1-11 1.17 Land Acquisition and Resettlement ............................................................................... 1-11 1.18 Environmental Impacts.................................................................................................. 1-11

2. PROJECT RATIONALE ........................................................................................................... 2-1 2.1 Country Background........................................................................................................ 2-1 2.2 Performance Indicators and Analysis .............................................................................. 2-1 2.3 Analysis of Key Problems and Opportunities .................................................................. 2-3

3. CANDIDATE TOWN SELECTION ........................................................................................... 3-1 3.1 General ........................................................................................................................... 3-1 3.2 Sector Approach.............................................................................................................. 3-1 3.3 Evaluating and Prioritizing the Longlisted Towns ............................................................ 3-2 3.4 Subproject Appraisal and Approval ................................................................................. 3-4 3.5 Content of Subproject Appraisal Report .......................................................................... 3-5 3.6 Candidate Project Towns ................................................................................................ 3-5

4. WATER SUPPLY & SANITATION DESIGN & TECHNOLOGY ............................................... 4-1 4.1 Project Focus .................................................................................................................. 4-1 4.2 Development in Accordance with Urban Master Plans.................................................... 4-1 4.3 Water Supply Service Levels .......................................................................................... 4-2 4.4 Water Supply Design and Planning Periods.................................................................... 4-2 4.5 Water Demand Forecasts ............................................................................................... 4-3 4.6 Water Supply Design Considerations.............................................................................. 4-3


December 2007 Page (iv)

4.7 Appropriate Water Supply Technology............................................................................ 4-6 4.8 Drainage Design for the Project ...................................................................................... 4-8 4.9 Sanitation in the Candidate Towns.................................................................................. 4-8 4.10 Sanitation Options for the Project.................................................................................... 4-9

5. THE PROPOSED PROJECT................................................................................................... 5-1 5.1 Project Impact and Outcome........................................................................................... 5-1 5.2 Outputs............................................................................................................................ 5-1 5.3 Output 1: Strengthened Urban Water Supply Sector....................................................... 5-1 5.4 Output 2 – Water Supply Development or Rehabilitation ................................................ 5-3 5.5 Output 3 – Improved Drainage ........................................................................................ 5-4 5.6 Output 4: Community Action and Participation................................................................ 5-5 5.7 Output 5: Improved Capacity for Project Implementation and O&M................................ 5-7 5.8 Other Aspects of the Project Design ............................................................................... 5-9

6. COST ESTIMATES & FINANCING PLAN ............................................................................... 6-1 6.1 Cost Estimates ................................................................................................................ 6-1 6.2 Financing Plan................................................................................................................. 6-2

7. IMPLEMENTATION ARRANGEMENTS .................................................................................. 7-1 7.1 Project Management ....................................................................................................... 7-1 7.2 Equipment for Project Implementation ............................................................................ 7-5 7.3 Implementation Period .................................................................................................... 7-5 7.4 Procurement.................................................................................................................... 7-6 7.5 Consulting Services......................................................................................................... 7-6 7.6 Disbursement Arrangements........................................................................................... 7-9 7.7 Accounting, Auditing, and Reporting ............................................................................... 7-9 7.8 Project Performance Monitoring and Evaluation ............................................................. 7-9 7.9 Project Review .............................................................................................................. 7-10

8. ECONOMIC AND FINANCIAL ANALYSIS............................................................................... 8-1 8.1 Economic Analysis .......................................................................................................... 8-1 8.2 Tariff and Affordability ..................................................................................................... 8-1

9. PROJECT BENEFITS, IMPACTS, AND RISKS....................................................................... 9-1 9.1 Expected Benefits and Beneficiaries ............................................................................... 9-1 9.2 Poverty Reduction ........................................................................................................... 9-1 9.3 Gender Impact................................................................................................................. 9-1 9.4 Environmental Impacts.................................................................................................... 9-2


December 2007 Page (v)

LIST OF TABLES Table 1-1: Features of Candidate Project Towns (from Phase 1 Surveys) ...................................... 1-3 Table 1-2: Project Cost Estimate in $ ‘000....................................................................................... 1-7 Table 1-3: Preliminary Project Financing Plan................................................................................. 1-7 Table 3-1: Initial Screening Criteria and Eligibility Criteria for the Project ........................................ 3-3 Table 3-2: Assessed Priorities for Development.............................................................................. 3-4 Table 3-3: Candidate Towns – Existing Infrastructure and Proposed Water Supply Systems......... 3-7 Table 3-4: Candidate Towns – Existing Socio-Economic Conditions .............................................. 3-8 Table 4-1 – Recommended Design Periods .................................................................................... 4-2 Table 4-2: Recommended Pipes in Transmission and Distribution System..................................... 4-4 Table 4-3: Pipe Supply Costs in US$/m vs Pressure Class............................................................. 4-4 Table 4-4: Comparison between Slow Sand Filters & Rapid Sand Filters ....................................... 4-6 Table 4-5: Recommended Water Treatment Systems for STWSP.................................................. 4-8 Table 4-6: Sanitation Options ........................................................................................................ 4-11 Table 5-1: Lao PDR Road Classes and Width of Road Limits....................................................... 5-13 Table 5-2: Rights-of-Way for Urban Roads.................................................................................... 5-14 Table 6-1: Project Cost Estimate in $000s....................................................................................... 6-1 Table 6-2: Preliminary Project Financing Plan................................................................................. 6-2 Table 7-1: Proposed Composition of PCU ................................................................................... 7-2 Table 7-2: Proposed Composition of PIU ........................................................................................ 7-3 Table 7-3: Equipment for Project Implementation............................................................................ 7-5 Table 7-4: Proposed Procurement Packages .................................................................................. 7-8 Table 8-1: Projected Utility Wide Tariffs........................................................................................... 8-1 Table 8-2: Affordability and Willingness to Pay................................................................................ 8-2

CORE APPENDICES Appendix 1: Draft Design and Monitoring Framework Appendix 2: Urban Water Supply and Sanitation Sector Assessment Appendix 3: Lessons Learned from Previous Projects Appendix 4: Cost Estimates Appendix 5: Project Implementation Schedule Appendix 6: Outline Terms of Reference for Consultants Appendix 7: Procurement Packages Appendix 8: Summary Poverty Reduction and Social Strategy Appendix 9: Summary Economic and Financial Analysis Appendix 10: Summary IEE for the Project Appendix 11: Summary LACF for the Project


December 2007 Page (vi)

VOLUME 2 - SUPPLEMENTARY APPENDICES A- P Appendix A: Draft Problem Analysis and Objectives Tree Appendix B: Prioritization of Longlisted Towns Appendix C: Project Vehicles and Equipment Appendix D: Chronology of Urban Water Supply Policy, Legal and Institutional Development Appendix E: Sector Capacity Building and Action Plans Appendix F: Capacity Building for Project Implementation Appendix G: Detailed Project Implementation Arrangements Appendix H: Lao PDR Economic Performance and Outlook Appendix I: Detailed Economic Analysis Appendix J: Detailed Financial Analysis Appendix K: Population Review and Projections for the Project Towns Appendix L: Examples of Private Sector Participation in Piped Urban Water Supply in Lao PDR Appendix M: Human Resources Development Strategy Appendix N: Design Criteria and Service Levels Appendix O: Description of Three Sample Subprojects Appendix P: Detailed Cost Estimates Relating to Outputs 1 and 5

VOLUME 3 – SUPPLEMENTARY APPENDICES R-X Appendix R: Poverty and Social Assessment (plus Socio-economic Survey Questionnaire) Appendix S: Stakeholder Analysis Appendix T: Gender Analysis and Action Plan Appendix U: Land Acquisition and Compensation Framework Appendix V: Ethnic Groups Development Framework Appendix W: Initial Environmental Examination for the Project Appendix X: Environmental Assessment and Review Framework

VOLUME 4 – SUPPLEMENTARY APPENDIX Y Appendix Y: Assessment of Financial Management Capacity and Tariffs of Nam Papas


December 2007 Page (vii)

ABBREVIATIONS AND EQUIVALENTS ADB Asian Development Bank AFD Agence Francaise de Developpement AIEC Average Incremental Economic Cost AIFC Average Incremental Financial Cost AP Affected Persons BNP Branch Nam Papa BPO Business Promotions Office BTC Belgian Technical Cooperation CAP Community Actions and Participation CEDAW Convention of the Elimination of all forms of Discrimination against Women CIPP Community Information and Participation Program CDP Capacity Development Program CPI Committee for Planning and Investment DHUP Department of Housing and Urban Planning DI Ductile Iron DMS Detailed Measurement survey DN Pipe Nominal Diameter (in mm) DPACS Department of Public Administration and Civil Service (of the Prime DPWT Department of Public Works and Transport DRC District Resettlement Committee EA Executing Agency EARF Environmental Assessment and Review Framework EIA Environmental Impact Assessment EIRR Economic Internal Rate of Return EL Enterprise Law EMP Environmental Management Plan EOCC Economic Opportunity Cost of Capital FIRR Financial Internal Rate of Return GAP Gender Action Plan GOL Government of Lao PDR GPOBA Global Program of Outputs Based Aid GRID Gender Resource Information and Development Centre GS Galvanized Steel HH Households HRD Human Resources Development ICB International competitive bidding IEC Information, Education and Communication IEE Initial Environmental Examination IEM Independent External Monitoring IOL Inventory of losses IPS Improved PNP Sustainability KOICA Korean Aid Agency Lao PDR Lao People's Democratic Republic LAR Land Acquisition and Resettlement LACF (P) Land acquisition and compensation framework (plan) LECS Lao Expenditure and Consumption Surveys LFNC Lao Front for National Reconstruction


December 2007 Page (viii)

ABBREVIATIONS AND EQUIVALENTS (continued)

LWU Lao Women’s Union M. Muang M&E Monitoring and evaluation MDGs Millennium Development Goals MIS Management Information System MOH Ministry of Health MPWT Ministry of Public Works and Transport Nam Saat The National Center of Environmental Health and Water Supply NCB National competitive bidding NCRWSSP Northern and Central Regions Water Supply and Sanitation Sector Project NDF Nordic Development Fund NGO Non-Government Organization NGPES National Growth and Poverty Elimination Strategy NORAD Norwegian Agency for Development Cooperation NPL Nam Papa Lao NPNL Nam Papa Nakhonluang NPV Nam Papa Vientiane NTU Nephelometric Turbidity Units NWTTI National Waterworks Technical Training Center (Thailand) OHUP Office of Housing and Urban Planning (of DPWT at provincial level) OOE Office of Education OOH Office of Health OPWT Office of Public Works and Transport O&M Operation and Maintenance PCU Project Coordination Unit PDR People’s Democratic Republic PE Polyethylene PIA Project Implementation Assistance PIB Public Information Booklet PIR Poverty Impact Ratio PIU Project Implementation Unit PN Pipe Pressure Class PNP Provincial Nam Papa PPIAF Public-Private Infrastructure Advisory Facility PPP Public Private Partnership PPME Project Performance Monitoring and Evaluation PPSC Provincial Project Steering Committee PSA Poverty and Social Analysis PSC Project Steering Committee PSP Private Sector Participation PVC Polyvinyl Chloride RCS Replacement Cost Survey ROW Right of Way SES Socio-Economic Survey SGIA Second Generation Imprest Account SIP Sector Investment Plan SOE State Owned Enterprise


December 2007 Page (ix)

ABBREVIATIONS AND EQUIVALENTS (continued)

SSIP Small Scale Independent Provider STEA [Former] Science Technology and Environmental Agency STDP Small Towns Development Sector Project STWSP Small Towns Water Supply and Sanitation Sector Project TA Technical Assistance TOR Terms of Reference TDG Tariff Determination Guidelines UDAA Urban Development Administration Authority UFW Unaccounted-for-water VEI Village Environmental Improvements VIP Ventilated improved latrine VRC Village Resettlement Committee WACC Weighted Average Cost of Capital WASA Water Supply Authority WATSAN Water and Sanitation Unit WB World Bank WFP World Food Program WREA Water Resources and Environmental Agency (created 23 July 2007) WSARC Water Supply Authority Regulatory Committee WSD Water Supply Division WSIP Water Supply Investment Plan WSP-EAP Water and Sanitation Program for East Asia and the Pacific WSSSP Water Supply and Sanitation Sector Project WSTP Water Supply Tariff Policy WTTC Waterworks Technical Training Center (Lao PDR)

UNITS ha Hectare Lpcd Liters per capita per day L/s Liters per second m Meter mg/L Milligrams per Liter mm Millimeter m3/day Cubic meters per day


December 2007 Page (x)

FIGURE 1: LOCATION OF CANDIDATE PROJECT TOWNS

PHONGSALY

LUANGNAMTHAOUDOMXAY

BOKEO

HUAPHAN

XAYABURY

XIENGKHUANG

VIENTIANE

BORIKHAMXAY

KHAMMUAN

SARAVANE SEKONG

CHAMPASACK

ATTAPEU

SMALL TOWNS WATER SUPPLY AND

Legend

Secondary Town

International BoundaryProvincial Boundary

Capital City

Mekong River

THAILAND

CAMBODIA

MYANMAR

VIETNAM

PEOPLES' REPUBLIC OF CHINA

1000 50

Kilometers

200 300

Small Town

Mekong River

SANITATION SECTOR PROJECT

M. Add

M. Pha oudom

M. Huoixai

M. Pakbeng

M. Viengphoukha

M. Long

M. Vangvieng

M. Kasy

M. Nonghed

M. Botene

M. Khop

M. Songkhone

M. Saravane

M. Xaysetha

M. Champasack

M. Pakxong

M. Thateng

M. Lakhonepheng

Namthouam

Nonhay

SAVANNAKHET

PAKSE

THAKHEK

M. Sepone

LUANGPRABANG

VIENTIANECAPITAL CITY


December 2007 Page 1-1

1. EXECUTIVE SUMMARY

1.1 Project Description The Small Towns Water Supply and Sanitation Project (STWSP) aims to provide safe, reliable and affordable piped water supplies, drainage and sanitation improvements in up to 21 small district towns throughout Lao PDR. It has been formulated as a sector investment project, requiring the towns and their provincial authorities to demonstrate their commitment to the Project and its associated reforms, thus encouraging a demand-driven approach. The Project has a strong community participation focus, reinforced by health and sanitation awareness.

The Project will strengthen water sector planning, management and regulation and enhance sector sustainability by: (i) providing support to the Water Supply Division (WSD) of the Department of Housing and Urban Planning (DHUP), the Water Supply Authority (WASA) and the provincial Department of Public Works and Transport (DPWT); (ii) assisting provincial Nam Papas (PNPs) to improve their organizational performance, and; (ii) promoting policy, tariff and institutional reforms.

1.2 Rationale

1.2.1 Background While significant investments have been made in the urban water supply sector over the past decade, the majority have focused on Vientiane and the four secondary towns of Kaysone, Pakse, Thakhek, and Luangprabang, which represent only 41% of the country’s urban population. The remaining small towns with populations ranging from 2,000 to 20,000 were largely neglected until the Asian Development Bank’s (ADB’s) Water Supply and Sanitation Sector Project (WSSSP) and the Northern and Central Regions Water Supply and Sanitation Sector Project (NCRWSSP)1. In 2007, piped water supply coverage in the small towns was only 21% compared to combined coverage of 70% in the five largest towns.

Although Lao PDR is essentially a rural country, the small towns are playing an increasingly important role in the country’s economy as centers of marketing and agricultural processing in their largely rural districts, as economic links between rural, national and international markets, and as places offering non-farm employment to the rural poor. Inadequate water supply and poor environmental conditions in the small towns deter socio-economic development and restrict the ability of small towns to serve as centers supporting their surrounding rural areas. The proposed Project will build on the two earlier ADB-funded water sector projects for small towns by developing or improving water supply and complementary drainage and sanitation in up to 21 towns.

1.2.2 Project Supports Government Policy The Project supports the GOL’s policy of developing small district towns as economic and service centers in the rural districts. By developing these small urban centers, the GOL is seeking to reduce poverty through economic growth and improve geographical equity in urban social infrastructure development. The poverty reduction partnership agreement, signed in September 2001 by ADB and the GOL, includes small towns development as one of the key operational priorities to enhance reciprocal linkages between urban and rural areas. By developing or improving water supply systems in up to 21 small towns, the Project contributes to GOL’s water supply sector goal which is to provide 24-hour per day access to safe drinking water for 80% of the urban population by the year 2020.

1.2.3 Water Sector Strengthening Since 1999, ADB assistance has, in addition to water supply construction, focused on tariff reform, capacity development of provincial water supply enterprises (PNPs) and strengthening of sector policy making, planning, management and regulation. The Project supports GOL’s ongoing efforts to reform the water supply sector by providing assistance for institutional strengthening of the WSD, DPWT, WASA and PNPs. Building the capacity of WSD and DPWT in sector planning and 1 The WSSSP constructed water supply schemes in 15 small towns and rehabilitated five small town water supply

systems in the period 2000-2007. The NCRWSSP is expected to develop water supply systems in 11 small towns in the period 2006-2012.



management and developing WASA towards an effective, capable regulator are seen as essential steps to improve sector sustainability, particularly for helping to make PNPs self-sufficient and encouraging private sector participation in the sector. The Project’s continuing support to WSD, WASA and PNPs will build on the progress achieved and lessons learned under the WSSSP, the NCRWSSP and other external assistance over the past seven years, including the comprehensive JICA training programs for PNPs. The Project will provide much stronger linkages than previously between the water supply investments and WASA’s intended regulatory role, by making adoption of WASA’s tariff recommendations a precondition to funding approval and helping Project PNPs to improve their organizational performance to meet WASA recommended benchmark performance indicators.

1.3 Project Impact and Outcome The expected impact of the Project is: improved quality of life of small town residents in Lao PDR and enhanced role of the small towns as economic, market, services, and manufacturing centers for their surrounding rural areas. The expected outcome of the Project is improved access, quality and reliability of water supply and sanitation services in up to 21 Project towns throughout the country. These outcomes will be achieved by: (i) constructing new optimally sized water supply systems using appropriate technologies in up to 18 towns, (ii) rehabilitating water supply systems in up to three towns, (iii) improving public drainage facilities in priority areas of the towns; (iv) motivating public participation in water and sanitation infrastructure development and village environmental improvements; (v) enhancing public health and sanitation awareness; (vi) strengthening the urban water supply sector planning, managing, and regulating capacity, and: (vii) promoting the private sector’s participation in water supply services. The Project has been designed within the framework of the Government Decision 37/PM on the Management and Development of the Water Supply Sector (Decision 37/PM) and within the absorptive capacity of the sector institutions that will receive ongoing technical and management support through the Project.

1.4 Candidate Towns A total of 21 towns in 13 provinces have been identified as candidate subprojects for the STWSP following prioritization of 26 towns listed in GOLs’ Water Sector Investment Plan. Each town and subproject will be required to meet the eligibility criteria agreed between the Asian Development Bank (ADB) and the Government of Lao PDR (GOL) before it can be approved for funding. Section 3 describes the subproject selection process and eligibility criteria.

The candidate subprojects include 18 towns where a new water supply system is proposed and three towns where existing water supply systems require rehabilitation. Based on population projections for 2015, the number of potential direct beneficiaries receiving clean reliable water supply may include up to 196,000 people in 165 villages. Ten of the 21 districts included in the Project are currently designated as poor or very poor districts2. Table 1-1 summarizes features of the candidate towns and their assessed priorities for development according to agreed criteria.

The 10 towns in the highest priority group will be the first towns to receive funding under the Project provided that (i) adequate funds are available; (ii) the concerned provincial and district governments and the Provincial Nam Papas (PNP) are ready to implement the subproject; and, (iii) the concerned provincial and district government and subprojects comply with the agreed Project eligibility criteria. The second priority towns will receive funding after towns in the first group, based on similar criteria. During the preparation of the STWSP, Feasibility Studies were prepared for three high priority sample subprojects, namely: new water supply systems in Viengphoukha and Songkhone, and minor rehabilitation works for the existing water supply system in Houixai.

2 Source: National Growth and Poverty Eradication Strategy. Poor districts are: Add, Khop, Xaysetha and Feuang

(Non Hai); poorest districts are: Long, Viengphoukha, Pakbeng, Pha Oudom, Nonghed, Sepone



Table 1-1: Features of Candidate Project Towns (from Phase 1 Surveys) Core Villages Existing Water Supply & Sanitation

in Core Villages Ethnicity (% HH) Poverty (% HH)

Initial Priority

Name of Small Town Province

No Y2006 Pop'n

HH Size

Growth Corridor

Main Roada Water Supplyb Road

kmc Latrines%

of HHd Solid Waste

Mgt

Grid Elect-ricity

Tai-Kadai

Mon-Khmer

Hmong-Tien & Sino-

Tibetan

Core Villages Districte

Comments

1 Viengphoukha Luangnamtha 3 2,975 5.0 NSEC, R3 NS, W, R 6.4 79 No No 7.4 92.3 0.3 59.8 55.7a

19 Mouang Long 6 5,147 6.9 17A,17B NS, W, R 10.5 36 No No 63 4 33 21.7 80.6a Border Town

7 Pakbeng Oudomxay 6 4,395 5.7 R2W W, R 11 78 No No 32.9 63.7 3.4 42.3 86.3a Tourism

13 Pha oudom Bokeo 9 4,234 4.9 N NS, W 20 52 No Yes 58.1 41.9 35.4 55.9a Border Town

2 Huoixai 8 9,442 5.2 R3 PNP, R, W 29 71 Yes Yes 88 12 4 4 Border/Rehab.

11 Namthouam Luangprabang 12 13,253 6.1 EZ, R13N NS, R 16.5 41 No Yes 31 51.3 17.7 19.6 5.4 Econ. Zone

5 Mouang Add Huaphan 11 6,033 5.8 R6A W, R 12 77 No Yes 92.9 7.1 30 52.6a

6 Botene Xayabuly 5 4,067 4.9 NSEC, R4 NS, W, R 12 100 No Yes 99.8 0.2 0.4 Border Town

9 Mouang Khop 9 6,491 5.2 R3 W, R 18 88 No Yes 96 0.4 3.6 10 28.0a Border Town

21 Nonghed Xiengkhuang 8 4,407 6.9 R7 R, SSIP 18 97 No No 14.6 1.2 84.2 1 54.8a Border Town

15 Non Hai Vientiane 6 11,841 6.6 N W, R 16.5 53 No Yes 17 9.1 73.9 26 13.3

20 Kasy 8 7,937 4.8 R13N NS, W, R 11 80 Limited Yes 69.5 28.9 1.5 7

12 Vangvieng 7 8,409 5.4 R13N PNP, R, W 27 99 Yes Yes 96.7 2.6 0.7 1.7 Tourism/Rehab.

10 Songkhone Savannakhet 12 13,377 5.2 R13S W,PNP,R,SSIP 35.2 87 Limited Yes 100 0.8

3 Sepone 7 7,287 6.3 EWEC,R9 W, R 10 62 No Yes 93.5 6.5 29.1 76.4a Border Town

14 Lakhonepheng Saravane 10 4,150 5.9 R13S W 8.5 21 No Yes 100 0 Border Town

16 Saravane 8 11,383 5.7 R20,R15A PNP, R, W 25 86 Yes Yes 60.9 39.1 4.5 Rehab.

8 Thateng Sekong 3 4,441 5.8 R16 PNP,SSIP,W,R 12.5 76 No Yes 47.4 52.6 7.2 7.8

4 Champasack Champasack 14 9,833 5.5 P, R14A SSIP, W, R 25 62 Limited Yes 100 7.2 8.2 World Heritage

17 Pakxong 4 6,999 5.7 R16 W 20 44 No Yes 29.3 70.7 10 12.2 Tourism

18 Xaysetha Attapeu 9 9,714 5.2 R16A SSIP, W, R 18 67 No Yes 83.7 24.3 14.9 43.7a Border Town

TOTALS OR AVERAGES 165 155,815 5.6 439.6 68 69.2 21.7 9.7 13.4 31.4

Notes: Source of data: TA4875-LAO Phase 1 Surveys by TA consultants and Data Sheets completed by provincial and district agencies in May-June 2007. a. D = district road; EWEC = East-West Economic Corridor; EZ = Economic Zone; N = national road; NSEC = North-South Economic Corridor; P= provincial road; R = regional road; b. Existing main sources of water supply in wet and dry seasons: W = well; T = tubewell; NS = Nam Sa'at; R = River, stream; PNP = Nam Papa piped system; SSIP = small scale independent provider (private) c. Length of roads in core villages including sections of regional and national roads. d. % of households with pour flush pit latrines e. In the absence of data provided by district authorities, the district poverty rate is the 2001/2002 rate as reported in the NGPES. f. Initial priority is the priority for water supply development assessed in Inception stage of TA4875-LAO, according to criteria agreed between Government and ADB.



1.5 Outputs The Project has five integrated outputs, namely: Output 1: strengthened urban water supply sector, including: (a) strengthened sector planning, management, and regulation, and (b) improved PNP sustainability; Output 2: developed or rehabilitated water supply systems; Output 3: improved urban drainage works; Output 4: enhanced community action and participation; and Output 5: improved capacity for project implementation and operation and maintenance of subproject facilities. Output descriptions are as follows:

1.5.1 Output 1: Strengthened Urban Water Supply Sector This output is designed to strengthen the overall water supply sector and improve sector sustainability. It comprises strengthened sector planning, management and regulation, and; improved PNP sustainability.

Output 1.1: Strengthened Sector Planning, Management and Regulation includes institutional strengthening of WSD, WASA, and DPWT and a scholarship program for water supply sector engineers.

Institutional Strengthening of WSD, WASA and DPWT: The institutional strengthening of WSD and WASA will build on previous and ongoing ADB and NORAD assistance to WSD and WASA under the WSSSP and NCRWSSP. Through consultant support and training, the Project will strengthen WSD’s capacity to formulate policy, plan and develop the water supply sector. It will assist WSD to: (i) complete key technical guidelines and standards; (ii) build the capacities of WSD staff to develop, manage, plan and formulate policy for urban water supply; (iii) formulate a human resource development (HRD) strategy for the urban water supply sector, and; (iv) disseminate technical and management guidelines. The support will also assist WASA to: (i) undertake its core regulatory functions3 over 2009-13; (ii) undertake the PNP tariff review for 2011-2013; (iii) raise awareness of Ministries, provincial governments and PNPs regarding sector regulation, and; (iv) disseminate regulatory guidelines and procedures to DPWT, other provincial agencies and PNPs.

The Project will also strengthen the capacity of the DPWT in each Project province to plan, develop and manage provincial water supply and sanitation services. Consultant support, workshops and formal training courses will develop the capacity of staff within DPWT that are responsible for water supply and sanitation, including the concerned DPWT Deputy Director and professional staff in the provincial office of housing and urban planning (OHUP).

Scholarship Program for Water Supply Sector Engineers: The Scholarship Program aims to increase the number of qualified engineering graduates entering the Lao water supply sector and upgrade the skills of engineers already working in the sector. Shortage of qualified and dedicated water supply and environmental engineers constrains sector sustainability, particularly in the provinces where skilled personnel are scarce. The scholarships will target engineering students who have successfully completed at least 3 years of a 5-year engineering bachelor course, and professionals practising in the water sector. The scholarships will be available for the final 2-years of bachelor degree courses in environmental engineering4 or water supply engineering. To be eligible for the scholarships, candidates must be nominated by DHUP, DPWT, PNP or a private water supply provider, with commitment by both parties to ongoing employment. WSD will develop detailed eligibility criteria and procedures for the scholarship program, and administer and implement the scholarship program over 2010-2013.

Output 1.2: Improved PNP Sustainability (IPS): The Project will assist all PNPs5 that adopt WASA recommended tariffs to improve their organizational performance and sustainability. Consultants and WSD will help the participating PNPs to: (i) develop and implement immediate action plans and corporate plans; (ii) prepare an organizational HRD strategy and build the capacities of PNP staff at 3 Including PNP performance monitoring and preparing annual reports on PNP performance. 4 Environmental engineering courses cover the fields of water supply, wastewater, drainage, sanitation and solid

waste management. 5 All PNPs will be eligible to participate in the IPS irrespective of whether they receive new or rehabilitated water

supply systems under the Project.



all levels; (iii) strengthen the PNPs’ management and financial systems; (iv) corporatize under the Enterprise Law, 2005, and; (v) establish a Memorandum of Agreement (MOA) between the provincial governor and PNP covering working arrangements, financial and operational performance targets, delegation of authority and tariff setting. The corporate plan will provide a roadmap to transform each PNP into a more efficient, autonomous, water supply company with specific mandate, objectives and targets and more commercial focus.

The Project will focus on developing PNP capacity for business management, financial management and efficient operation and maintenance. This will assist PNPs to effectively manage increased revenues generated through the WASA recommended tariffs, and demonstrate to customers that service levels are improving following the tariff adjustments.

The Project will procure computer hardware, laboratory water quality testing equipment and improved billing and accounting systems for the PNPs. Regional workshops will facilitate sharing of experiences, lessons learned and networking between PNPs. The consultant support will provide system-specific capacity development and training for PNP provincial and district staff in system operation and maintenance and help each PNP to develop short and medium-term water supply investment plans6 for each of its water supply systems.

1.5.2 Output 2 - Water Supply Development or Rehabilitation The Water Supply Development aims to develop safe, affordable, reliable PNP piped water supply systems for the core urban areas of up to 18 Project towns. It will include: the development of: (i) surface, spring or groundwater source; (ii) raw water transmission; (iii) water treatment facilities, including a small water testing laboratory; (iv) distribution and reticulation pipework; (v) service reservoirs; (vi) individual metered service connections, and; (vii) an office/workshop/store for the PNP branch. Equipment for operation and maintenance (O&M) of the water supply systems will be procured.

Households that apply to connect during the construction period will not be required to pay any up-front connection charges for small-bore reticulation, connections or meters, but the cost of these items will form part of the subproject capital cost and will be recovered through the water tariff. This connection policy is being piloted under the NCRWSSP and will be refined for the STWSP. The policy will assist poor and low income groups to participate in the piped water supply system, encourage new connections and enhance PNP financial sustainability.7 Marketing and awareness campaigns will inform communities about the Project’s connections policies and the benefits of connecting to PNP piped water supply.

The Water Supply Rehabilitation comprises minor rehabilitation works for up to three towns having existing PNP piped water supply systems. The base construction cost of the rehabilitation works is limited to a maximum of $150,000 per town for works to improve supply reliability or water quality. System expansion, capacity augmentation and rehabilitation works resulting from lack of operation and maintenance are not eligible for funding under the Project.

1.5.3 Output 3 – Improved Drainage This output consists of improved or upgraded public drainage in the main urban areas of the towns to alleviate minor flooding and minimize ponding of stagnant pools of polluted water. The drainage will include the construction or improvement of primary drains, secondary drains, roadside drains and outlets. The drainage works will be selected and planned by district agencies in collaboration with communities and will be constructed by civil works contractors. Equipment for O&M of the drains will also be procured. The base construction cost of the drainage works is limited to a maximum of $80,000 per town.

6 The investment plans will comprise costed year-by-year plans for staged development of the water supply system

infrastructure to meet forecast water demand. They will be integrated with the Water Supply Investment Plan. 7 The construction contractor will install small bore reticulation, service connections and meters during the

subproject construction period. Households that receive the connections free of up-front charges will be required to pay for a minimum of 5m3 of PNP piped water per month even if they use less than this quantity.



1.5.4 Output 4 – Community Action and Participation (CAP) The Community Action and Participation (CAP) is designed to improve environmental health at the household and village level. It comprises complementary communication and infrastructure activities that: (i) increase acceptance of water supply systems; (ii) enhance the benefits of water supplies through improved household sanitation, village-level environmental improvements and community health awareness, and; (iii) promote participatory and consultative processes for all residents of core villages.. It consists of the following:

The Community Information and Participation Program (CIPP) will inform communities of the project’s activities; motivate households to connect to piped water supply system and improve their toilet facilities; help communities to plan, design, operate and maintain local urban infrastructure in partnership with local agencies; improve community awareness of health, hygiene and sanitation; and inform the public about Project policies and procedures, related to land acquisition, compensation and resettlement, environmental management, sanitation regulations, gender and ethnic groups development. Village committees will be strengthened through broader community representation, training and capacity development.

Village Environmental Improvements (VEI) will provide grant funds and technical assistance for small-scale sanitation and environmental improvements in the core villages. The scope of works will include: (i) construction and/or upgrading of household toilets, pit latrines, yard taps and soakaways for poor households, and; (ii) construction of small-scale community environmental improvements such as drains, footpaths, drainage improvements for existing village access roads, paved public areas and improved toilets and sanitation facilities for groups of households and for community facilities such as meeting halls and schools in core village areas.

1.5.5 Output 5 – Improved Capacity for Project Implementation and O&M This output includes project implementation assistance, capacity development for O&M and incremental administration support.

Project Implementation Assistance (PIA): will provide consulting services and training to assist the central project coordination unit (PCU) and each provincial PIU to implement the Project. It will also provide support in the form of consultants and training to the PIUs, and to village water and sanitation units (WATSANs) to enhance their capacities to implement the CAP. Orientation workshops for a wide range of stakeholders, together with resettlement training and workshops for district officials will also be conducted. The PIA will also pilot an appropriate PNP-private sector cooperation model for water supply to extension areas outside the PNPs designated service area in one selected small town. The support will include awareness raising and technical support for small-scale independent providers (SSIPs) operating in the selected town.

Capacity Development for O&M: will help to develop more efficient institutions in the towns to manage urban services in a sustainable manner, by building the capacities of provincial and branch Nam Papas (BNPs) and district Offices of Public Works and Transport (OPWTs). It will also provide support to village water and sanitation units (WATSANs) and communities to enhance their capacities to operate and maintain village infrastructure and their on-site water and sanitation facilities.

Incremental Administration Support: will provide staff, vehicles, office and computer equipment for PCU and PIU offices for project implementation.



1.6 Project Cost Estimate The Project cost is estimated at $34.0 million equivalent, including taxes and duties of $3.6 million. A summary of the cost estimates is given in Table 1-2.

Table 1-2: Project Cost Estimate in $ ‘000 Output Total Cost

$000's %

1 Strengthened Urban Water Supply Sector 3,400 10.0 2 Water Supply Development 15,346 45.1 3 Improved Drainage 1,035 3.0 4 Community Action and Participation 2,233 6.6 5 Improved Capacity for Project Implementation and O&M 6,684 19.7 TOTAL BASE COST 28,698 84.4 6 Physical and Price Contingencies 4,189 12.3 7 Interest and Service Charges 1,114 3.3 TOTAL ESTIMATED PROJECT COST 34,000 100.0

Note: 1. In August 2007 prices. 2. Physical Contingencies 10% on civil works and equipment; 5% on consulting services. 3. Price escalation: 5.1-5.2% for local costs; 1.2% for foreign costs. 4. Includes taxes and duties estimated at $3.6 million. 5. Interest and service charges during construction at 6.4% per annum of subsidiary loan to be re-lent to the PNP.

1.7 Financing Plan Sources of funds for the Project are expected to include grants and loans from ADB and other international agencies. It is proposed that: (i) part of the grant or loan funds will be provided to the Ministry of Public Works and Transport (MPWT) to pay for the cost of consulting services and incremental administration; (ii) the Ministry of Finance (MOF) will onlend 30% of the costs of the water supply scheme to the PNP as subsidiary loan in domestic currency and carry an interest rate of 6.4% per annum, with repayment over 25 years including a 6-year grace period. Interest during construction will form part of the loan; (iii) the remaining 70% of the cost of the water supply scheme will be provided to PNP as grant, and; (iv) the balance of the ADB and other funds will be provided to the provincial government as a grant to cover the cost of other works.

Table 1-3: Preliminary Project Financing Plan Source Total Cost (US$ ‘000) Percent

Asian Development Bank 20,000 58.8% Other International Agencies 10,200 30.0%

Government 3,800 11.2% Total 34,000 100.0%

Note: Government contributions include an estimated $3.6 million for taxes and duties and $0.2 million for land acquisition and compensation.

1.8 Tariff Reform

1.8.1 Existing Situation Following decentralization in the late 1990’s, responsibility for managing water supply was devolved to the respective provincial governments, and PNPs were established as State Owned Enterprises in each province to manage urban water supply services. While PNPs were expected to become financially self-supporting, in practice tariffs in the majority of the PNPs are insufficient to cover O&M costs, let alone debt service or depreciation.

Since 2004, WASA has undertaken periodic reviews (every three years) of water supply tariffs in accordance with the provisions of the GOL tariff policy and the WASA water supply tariff



determination guidelines. Following the periodic reviews, WASA makes recommendations to the PNPs regarding the appropriate tariff structure and levels that are sufficient for sustainable operation. However, according to WASA’s own 2005 assessment8 only a third of the PNPs adopted tariffs close to its recommendations for 2005-2007, while the rest of the PNPs either partially adopted or ignored its tariff recommendations. Tariffs have fallen behind WASA’s tariff recommendations as PNPs have not adjusted tariffs for inflation.

1.8.2 Province Wide and Subproject-Specific Tariffs For the WSSSP, province-wide PNP tariffs were adopted, and were set to cover O&M costs plus 15% of capital investment costs. For the NCRWSSP, ADB and GOL agreed initially to adopt subproject-specific tariffs in each subproject town to recover full O&M costs plus 30% of capital investment costs. The use of subproject-specific progressive tariffs and increased cost recovery levels for the NCRWSSP were expected to provide greater incentive for PNPs to adopt least-cost solutions, minimize capital investment costs and for consumers to save water. However, subproject-specific tariffs are also likely to result in higher tariffs in the new water supply systems compared to tariffs for existing systems in the province.

The critical issue regarding PNP tariffs is tariff level (adequacy for sustainable operation) and not tariff structure (flat or rising block) or tariff coverage (province-wide or town-specific). The sustainability of the PNP as a whole needs to be addressed, not simply the sustainable tariff level for a new system. Even if a subproject (town) specific tariff is prescribed and adopted for a new water scheme, PNP’s sustainability as an entity is not assured if it does not adopt tariff levels similar to WASA’s recommendations in other parts of the province.

Although WASA’s role in tariff setting is only advisory, stronger linkages between the Project and WASA tariff recommendations are required to enhance the sustainability of the PNP as well as the new water supply system. Government may consider adopting a policy of excluding PNPs from project financial assistance unless their tariffs are adjusted to financially sustainable levels recommended by WASA. The Bank may also consider this as one of the loan/grant covenants for the Project. These actions are necessary to deliver longer-term sustainability of the PNPs and relieve the government of the burden of subsidies to the sector, thus freeing up financial resources for other sectors that may be more deserving of government assistance.

Longer-term financial viability for PNPs will require both tariff increases and improved operations efficiency (collection, non-revenue water (NRW), staff productivity, etc.). Tariff increases alone are not the solution to providing customers with the best-value service.

1.9 Executing Agency and Implementation Arrangements Project implementation arrangements are expected to be similar to the NCRWSSP, with modifications to improve efficiency and Project sustainability. MPWT will be the Executing Agency (EA) for the Project. A national project steering committee (PSC), which was established for the NCRWSSP, will also oversee this Project, give overall direction and provide policy guidance. The same PCU that was established for the NCRWSSP in the DHUP of MPWT will also be responsible for overall planning, coordination and management of this project. The PCU Director will be assisted by two competent and experienced Deputies – one for the NCRWSSP and one for the STWSP.

PIUs will be established under the DPWT in each Project province. With assistance from the consultants and PCU, the PIU will be responsible for day-to-day coordination and supervision of project implementation in the Project district, and will manage procurement for Outputs 3 and 4. The PIU will implement Output 4 with full participation of WATSANs and village communities. A provincial project steering committee (PPSC) will be established in each province to coordinate provincial and district agencies and make key decisions on behalf of the provincial government. At the district level, the district governor or vice governor will oversee the project, monitor progress, review quality of the work, coordinate the subproject with the PIU and local communities, and report on progress to the PPSC.

8 2005 Annual Water Sector Performance Report, Lao PDR Water Supply Authority.



1.10 Implementation Period The Project is a sector investment project and will be implemented over a five year period from 2009 to 2013. The order in which subprojects are implemented will be determined by agreement between the GOL and ADB, depending on: (i) readiness of the concerned provincial and district governments and PNPs to implement the subprojects, and comply with the agreed eligibility criteria, and; (ii) geographical grouping of the subprojects to minimize costs and maximize implementation efficiency. Subprojects will be implemented as soon as they are ready, but for reasons of cost, efficiency and expediency, it is expected that they will be prepared and implemented in groups of 3-6 subprojects.

1.11 Readiness to Implement the Project At the start of Project implementation, the PCU and consultants will assess the readiness of each concerned province to implement the Project. In this regard, provincial governments and PNPs will be required to undertake the following actions prior to the start9 of Project implementation: (i) adjust tariffs to sustainable levels recommended by WASA; (ii) establish the PIU, staffed by qualified, competent staff suitably trained in project management, project accounting, ADB procedures, community development, computer and English language; (iii) formulate and implement a detailed plan to ensure that the PNP has the capacity to manage, operate and maintain the proposed water supply system, including appropriate staffing, training, technical and management support and, if necessary, concession contracts or service contracts for O&M of the new system. If the PCU and consultants assess that a particular province and its PNP are not ready to implement the Project, the concerned subproject will be assigned a lower priority for development, and the province and PNP will be required to undertake the necessary actions to enhance their readiness to implement before the subproject is approved for funding.

1.12 Procurement Goods, works and services financed under the loan will be procured in accordance with ADB’s Procurement Guidelines (February 2007, as amended from time to time) following the ADB’s Guidelines for Procurement.

International Competitive Bidding (ICB) procedures will be used for major civil works contracts estimated to cost over $1.0 million, and for supply contracts valued over $500,000. Procurement of civil works valued at less than $1.0 million equivalent will be undertaken through national competitive bidding (NCB). Shopping procedures will be followed for materials and equipment packages or works estimated to cost less than $100,000 equivalent. Local procurement procedures will be used for the small village level civil works and supply contracts, and for awareness activities and equipment under the CAP. To the extent possible, for local procurement, quotations will be invited from at least three suppliers or contractors.

All consultants to be financed from the proceeds of the loan or grant will be selected in accordance with ADB’s Guidelines on the Use of Consultants (February 2007, as amended from time to time). The main consulting services will be hired through two firms of international consultants in association with national consultants, using quality-and cost-based selection (QCBS).

The PCU will carry out all procurement for Outputs 1, 2 and 5. The PIU in each province will be responsible for procurement under Outputs 3 and 4. Installation of water meters and service connections will be carried out by the construction contractor under the main water supply construction contract for each town.

1.13 Consulting Services Consultants whose services are provided under Bank financing will be selected and engaged in accordance with the Bank’s Guidelines on the Use of Consultants. The Project consulting services will be provided under two consulting packages, by associations of international and domestic consulting firms.

9 The Project is scheduled to start in early 2009. The provincial governments are required to establish PIUs and

raise tariffs in the province to sustainable levels prior to early 2009.



A total of 1,141 person-months of consulting services (181 person-months international and 960 person-months domestic) will be required to support the Project. To ensure that all Project Outputs are properly integrated and coordinated, the consulting services will be managed by a single Team Leader/Project Manager reporting to the PCU.

The lead consulting firm will provide the services of the Team Leader, will be responsible for managing the overall consulting services and will also provide consulting services for project implementation assistance and capacity development for O&M. (Output 5). These services will comprise an estimated 106 person-months of international and 735 person-months of domestic consultants. The second consulting package will cover consulting services for institutional strengthening of WSD, WASA and DPWT, Improved PNP Sustainability and the Scholarship Program for Water Supply Engineers (Output 1). These services will require an estimated 75 person-months of international and 225 person-months of domestic consultants.

1.14 Public-Private Partnerships Small-scale independent providers (SSIPs) operate piped water supply systems in about 30% of the small towns nominated for inclusion in the Project. Studies of three SSIPs concluded that it would not be feasible for the SSIPs to continue to operate within the PNP’s service area following commissioning of the PNP water supply system because the SSIPs are unable to compete with the PNPs in terms of service levels, price and coverage. The SSIP systems provide low service levels (untreated water, unreliable supply and low pressures); their tariffs are similar to or higher than PNP tariffs, because they lack of economies of scale, must cover all costs and make a profit, unlike PNPs which receive grant funding for water supply system development and subsidies from provincial governments for operation and maintenance. In all three cases, the studies concluded that the PNP should take over the SSIP’s service area, pay appropriate compensation to the SSIP for loss of business or assets, and offer other business or employment opportunities to the SSIP’s staff.

Nevertheless, there are opportunities in most towns for SSIPs to develop and operate piped water supply systems in areas outside the PNP’s service areas. The proposed Project will pilot a model for public-private partnership (PPP) which will entail the SSIP (or village cooperative) purchasing bulk water from the PNP to supply extension areas, rural towns or villages outside the PNP service area, under a 20-25-year concession contract. The proposed contract would be similar to the “GRET” model10 and would be subject to competitive bidding.

1.15 Economic and Financial Analysis Quantifiable economic benefits of improved water supply services include benefits from non-incremental water consumption, incremental water consumption and other resource savings. The average economic internal rate of return (EIRR) for the sample subprojects is estimated at 18.26%, well above the economic opportunity cost of capital (EOCC) assumed at 12%. The average financial internal rate of return (FIRR) for the sample subprojects, on the other hand, is estimated at 0.78%, below the weighted average cost of capital (WACC) of 4%, the minimum rate test of the Bank. The FIRR result is due to the fact that the projected water tariff level, which is the utility wide tariff, is below the average incremental financial cost (AIFC) of the subprojects.

The drainage and sanitation components will significantly reduce the incidence and severity of flooding, reduce ponding of polluted water in public areas, provide sanitation facilities in public areas and schools, and improve the environmental and living conditions and public health in the project area. Economic benefits of the drainage and sanitation components are quantified in terms of increased property values in the project area. The average EIRR for the sample subprojects is estimated at 17.04%, well above the EOCC.

10 The French NGO, GRET, working in collaboration with WASA and DPWT, has helped to implement two private

water supply concessions and is working on another six. Under the GRET model, the district authority grants a local entrepreneur responsibility to invest, build and manage the water supply system in a specified service area. Following tendering, concession contracts are signed for 25 years during which the concessionaire is responsible for providing safe water supplies and the public authorities are responsible for monitoring water quality and regulating the service. The concessionaire receives a subsidy when a specified number of families are connected and when the poorest households also receive access to the system.



1.16 Project Benefits and Beneficiaries Based on assumed funding of $34million, the Project is expected to benefit an estimated 154,000 residents (Y2015) in 130 core villages of about 1611 small towns by providing safe, reliable piped water supplies and improved urban environments that will have a direct impact on the health and living conditions of the town communities. All residents of the town communities will benefit from safe water supply, improved sanitation and drainage works, which will enhance the community environment and, together with health and hygiene promotion activities, improve the health status of the target communities.

About 106 core villages in 13 towns12 will benefit directly from village environment improvements, providing improved drainage and sanitation in residential areas. The towns’ economies will benefit from enhanced productivity as a result of health improvements, time savings in collecting water, as well as from increased urban efficiency arising from improved water supply, drainage and sanitation. Many residents will benefit from lower water costs and from savings in health care costs. Improved infrastructure is expected to increase opportunities for investment in the small towns and enhance their roles as centers of trade, services and agro-processing, increasing employment opportunities for town residents and people from neighboring rural areas.

All project interventions will either directly or indirectly benefit the poor. About 22,000 (Y2015) urban poor or 15% of the population in 16 towns will benefit from: (i) greater access to safe water supplies and sanitation which will improve health profiles, and; (ii) from improved drainage that will enhance the poor’s mobility and access to markets, income-earning activities and government facilities such as schools and hospitals.

Both men and women will benefit from project activities, but women will be major Project beneficiaries, as they will spend less time collecting water and caring for the sick, and will be relieved of much of the drudgery in their daily lives. As women are generally responsible for the household budget, their perception of direct self-benefit will help to assure payment of costs associated with the piped water supply services.

1.17 Land Acquisition and Resettlement The three sample subprojects will have limited adverse impacts in terms of land acquisition and resettlement (LAR). Technical options have been chosen in the three sample subprojects to minimize permanent losses accruing to households through land acquisition and damage to structures. A number of factors have enabled a flexible planning approach: (i) alternative facility locations; (ii) relatively low population density; (iii) abundant public lands; and (iv) the use of existing rights-of-way for the routing of water supply pipelines and drains, with minor impacts on land, property or crops. All subproject feasibility studies will identify any potential losses associated with particular technical options, and in the event of losses being suffered, will prepare a resettlement plan to ensure full compensation according to Lao Government regulations and ADB Policy on Involuntary Resettlement. A summary land acquisition and compensation framework and land acquisition and compensation plans for the three sample subprojects have been prepared as separate reports and submitted to the Executing Agency for approval.

1.18 Environmental Impacts The Project will improve water supply, drainage and sanitation services in the Project towns, improving the environment in terms of health and quality of life impacts. The Project has been classified as Category B (non-sensitive), as defined in the ADB’s Environmental Assessment Guidelines (2003). Initial environmental examinations (IEEs) for three sample subprojects show no significant adverse environmental impact.

11 This is an initial estimate, based on assumed Project funding of $34million. The final number of towns depends on

available funding and implementation efficiency. 12 Drainage improvements and village environmental improvements will not be implemented in the three towns with

existing water supplies requiring rehabilitation.



The main potential environmental impact associated with the water supply systems is sludge and backwash water generation at the water treatment plants and their impact on the receiving water courses. In cases where the water treatment plants are located far from the intake or large rivers, potential impacts of sludge disposal will be mitigated by settling sludge and backwash water in sludge lagoons prior to release from the site. Sludge that accumulates in the lagoons will be dried on site and transported to a suitable disposal area. Potential environmental impacts for the infrastructure improvements in the urban areas are mainly short-term during the construction period and easily minimized by the proposed mitigation measures and environmentally sound engineering and construction practices.

In some towns, the threat of unexploded ordnance (UXO) exists at sites where excavations will be necessary for the proposed works. Site specific information will be gathered from consultations with local residents and where merited, the services of mine clearance companies will be engaged.

The VEI program will complement the mitigation measures and enhance the sustainable use of the water supply by improving village drainage and sanitation systems. The Environmental Assessment and Review Procedures (EARP) will ensure that the selection, assessment and implementation of the subprojects will comply with the environmental requirements of the GOL and those of ADB.



2. PROJECT RATIONALE

2.1 Country Background With a total population of about 5.6 million in 200513, Lao PDR has one of the smallest populations and lowest population densities (24 persons/km2) in Southeast Asia. It also has one of the region’s highest population growth rates (2.1%) and its population is projected to reach 7.3 million by 2020. About 73% (4.1 million) of the people live in nearly 12,000 small rural villages, while the remaining 27% (1.5 million) reside in 142 officially designated urban centers in 139 districts. While Lao PDR remains essentially a rural country, urban centers are playing an increasingly important role in Lao’s economy as evidenced by (i) increasing GDP share of the industry and services sectors over the past decade; (ii) urban population growth rate of 4.0% (in 2003-2005)14 which is almost twice the national average; (iii) increasing rural to urban migration across all provinces; and (iv) the Government’s socioeconomic development strategies which increasingly emphasize development of urban centers, particularly the small towns.

2.2 Performance Indicators and Analysis Socio-economic and Poverty Indicators: Although there has been consistent improvement in most socio-economic indicators over the past few years, Lao PDR remains one of the world’s least-developed countries. It was ranked 133rd among 177 countries in the UNDP 2006 Human Development Report. While agriculture still accounts for about 45% of GDP, the industry sector has grown most quickly over the past five years at about 11.3% p.a., followed by services at 6.7%, and agriculture at 3.4%. Government’s National Sixth Socio-Economic Development Plan, 2006-2010, (NSEDP6) forecasts GDP growth of 7.5-8% p.a., with agriculture and forestry increasing by 3-3.4%, industry by 13-14% and services by 7.5-8%. By 2010, the agricultural sector is projected to decline to about 36% percent of GDP, with industry about 36% and services 28%.

Poverty incidence decreased from 46% in 1992-93 to 34% in 2002-03 and 29% in 200515 on the back of strong economic growth across all sectors of the economy. While most of the country’s poverty is based in rural areas, the urban poor are also severely affected by environmental degradation, unclean water, lack of proper sanitation, and lack of access to essential services.

Water and Sanitation: In 1999, Government’s policy statement set the sector target of providing 24-hour access to safe drinking water for 80% of the urban population by 2020. Based on the 2005 census, overall access to safe water supply in urban areas is about 67% (277,000 urban households), with 45% of urban households having access to PNP piped water. However, large differences exist between the five largest towns (Vientiane, Kaysone, Pakse, Thakhek, and Luang Prabang) which have combined piped water supply coverage of 70% compared to 139 small towns with about 21% coverage16. Many people in the small towns still rely on shallow wells, ponds and streams which are often biologically contaminated.

Similarly, about 55% of urban households have pour-flush toilets, with 79% coverage in the five largest towns and 38% in small towns17. Less than 10% of primary schools have latrines, and markets often do not have any toilet facilities. Vientiane City, the secondary towns and provincial capitals have the highest coverage of sealed roads at 27-36%, while the district centers only have about 10% coverage of sealed roads. Roads in the small urban centers have mainly gravel or dirt pavements, with low coverage of roadside drains (typically <26%). In the wet season, the unsealed roads often become muddy and impassable hindering access to schools, markets and health facilities.

Roads in many of the small towns do not have interconnected drainage networks, resulting in flooding and ponding after rainstorms. Water in the roadside drains is often polluted through poor on-site

13 Results from the 2005 Population and Housing Census. National Statistics Center. 14 Based on 2003 Population Count and 2005 Census. National Statistics Center 15 Source: Lao Economic Monitor, November 2006, World Bank and NSEDP6 16 Source: Unpublished WASA Technical Indicators for 2006 17 Source: Urban Development Investment Plan, prepared as part of TA 3903-LAO, 2004.



sanitation systems, some of which discharge directly onto the road surface. Drainage, where it exists, becomes blocked with silt washed from the unpaved roads during the rainy season. Maintenance of urban roads and drainage is irregular and suffers from lack of essential funding. Many drains, particularly in flat terrain, are designed with non-cleansing grades and often lack low-flow channels, resulting in deposition of solids, stagnant flow and blockages in the dry season. Tertiary infrastructure in village residential areas – drains, footpaths and access ways- is also poor, hindering foot access and causing unhygienic conditions.

Low coverage of safe piped water supplies, poor sanitation conditions, and low hygiene awareness in the small towns have resulted in high incidence of diarrheal diseases, malaria and high morbidity. In the small towns, women and children can spend an average of 2 hours each day fetching water from distant sources.

Small Town Development: While significant investments have been made in the urban water supply and sanitation sector over the past decade, these investments have focused mainly in Vientiane and the four largest secondary towns, which represent only 41% of the total urban population. The remaining small towns with populations ranging from 2,000 to 20,000 were basically neglected until the ADB’s WSSSP and NCRWSSP. The WSSSP constructed water supply schemes in 15 small towns and rehabilitated five small town water supply systems in the period 2000-2007. The NCRWSSP is expected to develop water supply systems in 11 small towns in the period 2006-2012. To date, none of the 18 towns nominated for new water supply systems under the STWSP has received any external assistance for water supply development. The small district towns comprise a growing focus for economic activity and delivery of social services. Inadequate water supply and poor environmental conditions in the small towns deter socio-economic development and restrict the ability of small towns to serve as urban centers for the surrounding rural region.

Sector Institutions: In 1999, Government’s sector policy statement, Decision 37/PM, established the institutional framework and policy for the urban water sector. The main operational impacts of 37/PM were to devolve responsibility for urban water supply and sanitation (WSS) from central to provincial government, to create a new organization, WASA, under MPWT, and establish provincial water supply companies (PNPs) to manage the urban water supply services in each province. From late 1999, the majority of PNPs became semi-autonomous state-owned enterprise (SOE) under administration of the DPWT. By 2007, the remaining PNPs were established as SOEs. While WASA was established to assist the MPWT Minister on technical issues in the water supply sector and to manage/monitor the implementation of water supply sector policy, the Government’s long-term vision is to develop WASA gradually as an effective and capable sector regulator. Decision 37/PM also provided for the formation of a Water Supply Authority Regulatory Committee (WSARC) to oversee and direct WASA’s operations. Although Decision 37/PM defined the composition of the Committee, it has not yet been established.

Government Development Strategy: Government has prioritized agriculture, health, education, and infrastructure as the main elements of its agenda for poverty reduction in NSEDP6. A key element of the poverty reduction agenda is the provision of basic social services focusing on health, education, and clean drinking water. The Government’s policies attach increasing emphasis on achieving equitable development. The policies aim to develop the small towns as markets and centers of agro-processing, trade, services and social development for their surrounding rural areas, serving as economic links between rural, national, and international markets. NSEDP6 prioritizes development of basic infrastructure and services in urban areas throughout the country to accelerate broad-based economic growth. The poverty reduction partnership agreement, signed in September 2001 by ADB and the Government, includes small towns development as one of the key operational priorities to enhance reciprocal linkages between urban and rural areas.

ADB Country Strategy: ADB’s Country Strategy and Program 2007-11 is consistent with Government’s NSEDP6. It supports the Government’s priority sectors, with a focus on improving the national and sector-specific enabling environment for poverty reduction. While the strategy includes investment in major infrastructure projects, it also includes components that aim to reform sector governance, build sector capacity, foster inclusiveness, and ensure sustainability.

In terms of the water and sanitation sector, ADB’s strategy is to continue to provide funds for capital investments, water supply rehabilitation, and cost-recovery in the under-serviced small towns. At the



sector level, ADB support aims to strengthen the WASA’s regulatory role; ensure that capital costs for new water supply systems are contained; improve the delivery and management of water supply and sanitation services in a financially sustainable manner in secondary and small towns; encourage a gradual adoption of water supply tariffs that are sufficient to meet operating, maintenance, and depreciation costs; and ultimately to create greater scope for private sector participation. ADB assistance will also help the Government increase the coverage of sanitation systems so they reach more poor households, improve drainage networks, implement community health and sanitation awareness programs, and strengthen the capacity of local agencies and households to manage, operate, and maintain on-site water supply and sanitation facilities.

2.3 Analysis of Key Problems and Opportunities Imbalanced and Inadequate Investment: Despite considerable investments in the urban water sector over the past decade, overall piped water supply coverage in the small towns (at 21%) is well below targeted levels. In 1994, only five urban centers had piped water supply services, however by 2007, mainly through external assistance from ADB and other development partners, the number of urban centers with PNP piped water supply systems had increased to 51. The NCRWSSP will provide funding for 11 more small town water supply systems in the period 2006-2012. However, that still leaves 78 mainly poor small district towns with no piped water supply services18.

Further investment in water supply and sanitation in the remaining underserved small towns is urgently required to address unsatisfactory health profiles and deteriorating environmental conditions and support the small towns’ development as economic centers. The proposed Project will provide safe, reliable piped water supply and complementary small improvements in drainage and sanitation for up to 18 small district towns throughout the country. It will also rehabilitate about three existing small town water supply systems. The Project will build on previous ADB projects in the sector, complement initiatives by other development partners19, and assist the Government to achieve its overall goal for the urban water sector, covering a 2–3 year period of the Water Sector Investment Plan (SIP).

High Capital Investment Costs: Recent studies by WSD and by NCRWSSP consultants show that initial investment costs in small town water supply schemes in Lao PDR have been about two20 times those of neighboring countries. The reasons include remote location, limited economies of scale, the need to import construction materials and skilled labor, lack of a link between tariffs and capital costs and in many cases inappropriate design21, leading to excessive capital costs, high O&M costs and unsustainable systems. The Project will address cost efficiency by adopting appropriate technology and design criteria, focusing water supply services on the most densely core villages, and using realistic unit water supply consumption for system design.

Appropriate Technology: The technology adopted for the small town water supply systems is dictated primarily by the available water sources, the geography of the towns and the distribution of its population. Some small towns are located close to elevated, clean spring sources which provide the opportunity for gravity-fed water transmission systems and simple treatment using slow sand filters, with minimal mechanical content. However, low technology options simply do not exist for some small towns. Over 50% of the candidate towns will need to pump raw and treated water, and fully treat raw water in a modern water treatment plant. The operation and maintenance of these systems will be an order of magnitude more complex than a low technology gravity spring source using slow sand filters, but this is unavoidable in many cases. To ensure that such systems are sustainable the PNP will be required to formulate and implement a plan to manage, operate and maintain the proposed water

18 One of the NCRWSSP towns is not a district center. 19 Other development partners that have expressed interest in funding the small town water supply systems include:

(i) UN-HABITAT.; (ii) KOICA (Korean aid); (iii) SEDIF and GRET – private sector concessions, and; (iv) World Bank GPOBA – private sector. At September 2007, about 27 small town water supply projects were under consideration, including 17 under the GPOBA program.

20 A previous comparison suggested that the Lao costs were 5-10 times those of neighboring countries. While this may have been true in the case of one or two systems, the general comparison is now considered to be invalid.

21 An example includes specification of pressure class PN10 pipes when P6 are sufficient, resulting in a 12% increase in subproject construction costs.



supply system before the subproject is approved for funding. The PCU and Project consultants will assess the plan, and will include their assessment in the subproject appraisal report.

Unsustainable Tariffs: Following decentralization, PNPs were intended to be financially self-sufficient, and responsibility for tariff setting was delegated to the respective provincial governments. However, financial statements for 2006 and prior years show that tariff levels of all PNPs are well below full cost recovery levels, since all reported negative net operating income (revenue less operating expenses). The PNPs are unable to cover even basic operation and maintenance costs, let alone debt service and depreciation, and rely to a large extent on government budget support. All PNPs experience financial losses and need to adjust tariffs to improve cost-recovery and achieve financial sustainability.

Low tariffs have resulted in inefficient water usage, and reduced the resources available for further investment in the sector. Major arrears have built up to the utilities, mostly because of late payments by government agencies. Against this background, the utilities themselves have fallen behind on servicing their debts to Government. This is constraining the financial autonomy of the PNPs and as a consequence their managerial and operational autonomy.

To overcome these impediments to financial sustainability, the Government issued a National Water Supply Tariff Policy22 in 2004, and WASA prepared Tariff Determinations Guidelines for the PNPs. Based on these key documents, WASA assists PNPs to establish sustainable tariffs and service levels, by undertaking 3-yearly reviews of water supply tariffs and recommending PNP tariffs that are sufficient for sustainable operation. However, according to WASA’s 2005 assessment23 only a third of the PNPs adopted tariffs close to its recommendations for 2005-2007, while the other PNPs either partially adopted or ignored the recommendations. Tariffs have fallen behind WASA’s tariff recommendations as PNPs have not adjusted tariffs for inflation..

The Project’s eligibility criteria require provincial governments and PNPs to adjust tariffs to levels recommended by WASA prior to the Project start.

Province Wide and Subproject-Specific Tariffs: For the WSSSP, province-wide tariffs were adopted and PNP tariffs were designed to cover O&M costs plus 15% of capital investment costs. The application of a province-wide PNP tariff is consistent with Policy Statement 3 of the Water Supply Tariff Policy, which states that “each water supply operator shall apply a uniform tariff structure throughout its area of supply”. Different tariff structures may be adopted for different service areas if the operator can demonstrate its appropriateness to WASA and if such arrangements are approved by Minister of MPWT.

For the NCRWSSP, ADB and GOL agreed initially to adopt subproject-specific tariffs in each subproject town to recover O&M costs plus 30% of capital investment costs. The use of subproject-specific progressive tariffs and increased cost recovery levels for the NCRWSSP were expected to provide greater incentive for PNPs to adopt least-cost solutions, minimize capital investment costs and for consumers to save water. Lacking economies of scale, small water supply systems with subproject specific tariffs would have much higher tariffs than larger (provincial capital) schemes. High subproject-specific tariffs may not be affordable for all customers, and it is difficult to gain customer support when the PNP is applying a much lower tariff in other towns. Small town water supply systems would benefit from the application of province-wide tariffs. By spreading the costs over the entire customer base of the PNP, the utility can make tariffs affordable for all customers.

The supposed benefits of subproject-specific tariffs are based on the assumption that the subproject facilities will be properly maintained through the proper allocation of funds acquired through the tariff. For this to be effective, all water supply schemes in the PNP’s area of supply need to be set at similar cost recovery levels. Where the cost recovery levels vary from scheme to scheme (as they do at present), the only way to ensure that the revenue raised through the tariff from each specific scheme is dedicated to that scheme’s facilities is to employ a strict financial ring-fencing mechanism. The current government accounting system cannot offer this facility since revenues from different

22 Ministerial Decision No 5336/MPWT dated 26 April 2004 23 2005 Annual Water Sector Performance Report, Lao PDR Water Supply Authority.



schemes are effectively consolidated as overall PNP revenue24. Under a province-wide tariff, the PNP needs only a single billing (computerized) system because the tariff structure is uniform, resulting in lower administrative costs for the utility.

Even if a subproject (town) specific tariff is prescribed and adopted for a new water scheme, PNP’s sustainability as an entity could still be a problem if it does not adopt tariff levels similar to those recommended by WASA in other parts of the province. Stronger linkages between the Project and WASA province-wide PNP tariff recommendations are required to enhance the sustainability of the PNP as well as the new water supply system.

Unsustainable Water Supply Systems and PNPs: While the PNPs are SOEs operating under the Business Law, 1994 (and in future, the Enterprise Law, 2005), they lack commercial focus and have very limited managerial or financial autonomy. The requirement for provincial government approval extends to most of the PNPs’ key management and operating decisions, including setting tariff levels, determining service levels, staffing levels, staff salary and benefit levels, senior staff appointments, procurement, financial management, capital expenditures, and major maintenance expenditures.

Lack of managerial and operational autonomy is one reason why the PNPs are not operating efficiently or on a sustainable basis. Other constraints to sustainability include the scarce human, physical and financial resources available to PNPs at the local levels, the lack of provincial organizations’ experience with decentralized decision making, and their inability to mobilize the resources necessary to develop water supply services; low capacity for management and O&M of urban services, and; the lack of training and technology necessary to establish and operate modern consumer-focused water supply business enterprises. These factors combine to result in unsustainable, deteriorating water supply systems, and will ultimately lead to poor customer service and the inability to expand the water supply systems.

To date, external assistance to PNPs has mainly covered project management, capacity development for O&M, and support for specific projects. WASA has assisted the PNPs through its tariff reviews and publication of PNP performance indicators. However, the individual PNPs have received little specific assistance to improve their overall efficiency and sustainability, or to transform them from subsidized entities under government supervision to more efficient, commercial service companies.

The NCRWSSP has established a Memorandum of Understanding (MOA) between the provincial governor and PNP covering: (a) working arrangements, (b) financial and operational performance indicators and targets, (c) delegation of authority for tariffs and management, (d) setting tariffs at levels to cover adequate O&M, debt service and gradual increasing levels of depreciation. Awareness is being raised through visits and workshops among the provincial governments and the PNPs. Subsidiary loan agreements include tariffs principles, and arrears collection plans.

Under the STWSP, consultants and WSD will assist the Project PNPs to: (i) develop and implement immediate action plans and corporate plans to improve their sustainability and organizational performance, and; (ii) provide a roadmap for transforming the PNPs into more efficient, autonomous, water supply companies with specific mandate, objectives and targets, more commercial focus, and transparent, contractual relations with their customers and local governments.

Fragmented Water Supply Legislation: Since 2004, WSD has been working on the Water Supply Law, initially with UNESCAP support, and with Water and Sanitation Program for East Asia and the Pacific (WSP-EAP) support since 2005. “The Water Supply Law is intended to consolidate water supply legislation currently scattered across 134 pieces of separate legislation for water supply and 45 pieces of legislation for sanitation. It intends to clarify the regulatory environment for water supply; to enable greater private sector participation in and stronger community management of water supply; to clarify responsibility and to establish the right of access to basic water supply, sanitation and wastewater services; ensure that future supporting legislation reflects customary tribal and ethnic law through extensive field research nationally; and strengthen the legal basis for the provision of sanitation services”. Current legislation does not clearly define responsibility for sanitation, which involves several different provincial and district agencies including DPWT and its district offices, Urban Development Administration Authorities (UDAAs), PNPs and provincial Departments of Health 24 Discussion provided by Mr. Keith Burwell, Package A consultant, NCRWSSP.



(DOH). “The inclusion of sanitation within the Water Supply Law will facilitate future implementation decrees assigning responsibility for sanitation nationally to a single government agency.”25 MPWT plans to submit the Water Supply Law to the National Assembly in the period 2008-10. WSP-EAP has indicated that it will support WSD to disseminate the Water Supply Law to national and provincial governments and agencies.

The Water Supply Law is an important piece of legislation that could influence responsibilities for urban and rural water supply and sanitation and the direction of sector regulation. The Executing Agency and Project consultants will be required to actively monitor the drafting of Water Supply Law and keep ADB and concerned development partners fully informed through monthly progress reports. The Project’s sector strengthening activities will be reviewed regularly by the consultant, ADB and concerned development partners and re-scoped if necessary depending on the effectiveness of the support and developments in the sector.

Lack of Government Commitment to Regulation: With assistance from ADB and NORAD, WASA has made substantial progress since 1999 towards its proposed role as sector regulator. It has already prepared key financial, management, technical and regulatory accounting guidelines, facilitated private sector water supply initiatives, and published regular WASA annual reports, which evaluate the technical and financial performance of all PNPs in the country. WASA has also carried out tariff reviews in 2004 and 2007 (ongoing), which have assisted water companies to prepare submissions to their Provincial Governors for necessary tariff adjustments. Despite WASA’s growing profile, provincial governments, PNPs and water consumers have a poor understanding of the benefits of having a water supply regulator that will ensure good quality service and at a fair price, and assist PNPs to be sustainable.

At present, WASA reports to the MPWT, the same entity which supervises (through its provincial line agencies) the PNPs which are among the water service providers regulated by WASA, posing genuine concerns of conflict of interest. To provide effective and equitable regulation of the sector, WASA should in the long-term become an independent stand-alone regulator with its own source of funds. The Decree on Regulation of Water Supply Operations, Decree No 191/PM dated 1 July 2005, provides WASA with stronger legal authority to undertake regulatory activities and cover all urban water supply operators26. The Decree sets out the roles and responsibilities of WASA and the WSARC (referenced in Decision 37/PM), the regulatory obligations of urban water supply service providers and the rights of the consumers.

In September 2007, MPWT indicated that it was considering a change to Decree 191/PM which would elevate the role of the Regulatory Committee and redefine WASA's role as that of Secretariat to the Regulatory Committee, whose members include the Vice Minister MPWT and representatives from the Prime Minister’s Office and other Ministries. Although it remains to be confirmed, it appears that this move may also be designed to keep WASA as a small unit operating with Government budget under MPWT rather than an independent regulatory body with its own financing source.

Stronger commitment by the Government on the role of WASA is required to enable WASA to undertake its function as sector regulator. Lack of formal recognition of its role, adversely affects WASA’s regulatory activities, and restricts its potential to raise a levy from the operators to finance its regulatory activities. Without a self-funding mechanism, WASA must continue to seek funds through involvement in projects, diverting its regulating focus and conflicting with its regulating functions.

The Business Promotions Office (BPO) within the Prime Minister’s Office is leading GOL’s SOE reform program and is involved in the drafting of Prime Minister’s Instructive Orders for implementing the Enterprise Law, 2005. BPO plans to release its strategy for SOE reform during late 2007- early 25 Lao Economic Monitor, World Bank. November 2006. 26 The Decree confirms WASA’s responsibilities which include: (i) issuing licenses to suppliers defining their areas

of supply and performance obligations; (ii) ensuring that that suppliers carry out their responsibilities according to their licenses, legislation and regulations and in an environmentally sustainable manner; (iii) protecting customers’ standard of service; (iv) encouraging suppliers to become more efficient; (v) encouraging competition in the sector where appropriate, and; (vi) comparing the performance of suppliers, helping poor performers rise to the standards of the best. WASA is also responsible for promoting private sector participation in the urban water supply sector.



2008, which is expected to support the establishment of independent regulators for water supply and other infrastructure sectors. With International Finance Corporation and World Bank support, during 2008-09 the BPO and other government agencies are expected to formulate the Prime Ministerial Instructive Order on SOE Governance as one of the key mechanisms to implement the Enterprise Law. The SOE reform strategy and Order on SOE Governance are expected to clarify GOL’s direction for SOEs and infrastructure regulation.

The Project will continue the institutional strengthening of WASA provided under the WSSSP and NCRWSSP. It will assist WASA to prepare Annual Reports and undertake the tariff review for 2011-13, develop or update essential regulatory guidelines, develop a financing mechanism, build the capacities of mid-level staff and help raise awareness of WASA’s roles with all levels of government, PNPs and consumers.

Weak Institutional Capacity for Sector Planning and Policy Development: The Ministry of Public Works and Transport (MPWT) has overall responsibility for water and wastewater management systems in urban areas throughout the country.

According to Decision 37/PM, within the Ministry DHUP is responsible for urban water sector strategies and plans, technical standards, and managing the long-term capital investment program. A Director General heads the DHUP and is supported by six divisions, namely: Personnel and Administration, Planning and Cooperation, Housing, Urban Planning, Urban Development and Water Supply. In July 2005, DHUP issued its Decision No. 8027/DHUP on the Organization and Activities of the Water Supply Division, which confirmed WSD’s responsibilities, as: (i) formulating sector strategies and investment plans; (ii) mobilizing funds for water supply development; (iii) developing and supervising investment projects, and; (iv) preparing and implementing technical and management standards and guidelines. Prior to the issue of Decision 8027/DHUP in 2005, WSD lacked a clear mandate defining its responsibilities, which overlapped to some extent with those of WASA. However, some two years later, WASA continues to undertake functions for which WSD is responsible, including assisting with capacity development programs for PNPs and implementing private sector water supply programs.

Prior to 2005, WSD had received little external assistance apart from project management support, and had very limited capacity to undertake its planning and management functions. Support by ADB and NORAD under the NCRWSSP in the period 2005-2008 has provided institutional strengthening of the WSD, assisted WSD to recruit and train qualified staff and to prepare key technical and management guidelines. WSD has also assisted MPWT with drafting of the Water Supply Law on behalf of MPWT, with WSP-EAP assistance. With this support from ADB, NORAD and other development partners, WSD has made substantial progress in its core areas of responsibility.

The proposed Project will build on the previous ADB and NORAD support by assisting WSD to implement its 5-year action plan and build its capacity to undertake its core functions. The support will assist WSD to formulate a human resource development strategy for the sector, prepare key technical and management guidelines and disseminate the guidelines to the PNPs.

DPWT and its Office of Housing and Urban Planning (OHUP) has primary responsibility for water supply in the provinces. DPWT is responsible for supervising the PNP, and the Director of DPWT normally serves as Chairman on the PNP Administrative Board which governs PNP operations. DPWT also serves as the licensing authority for private water suppliers (e.g. under the GRET concession). Although Decision 37/PM gives PNPs responsibility for water supply throughout the province, in practice DPWT undertakes this role. As water supply service providers, the PNPs are only responsible for planning, developing and managing water supply systems in their service areas. DPWT also has primary responsibility for supervising sanitation infrastructure and associated regulations in the province. While DPWT staff are experienced with roads and bridges, they have little experience or capacity in water supply and sanitation. The Project will strengthen the capacity of the DPWT in each Project province to plan and develop water supply and sanitation services in the province.

Low Human and Institutional Capacity in Provinces and Districts: A key lesson learned from previous projects is that provincial and district agencies have low capacities for project implementation, and for management, operation and maintenance (O&M) of the completed water



supply systems. This problem has contributed to delays and cost increases during Project implementation and to unsustainable water supply systems following Project completion.

The PCU and provincial staff involved in previous ADB projects are expected to assist provincial governments and PNPs to develop training programs, establish PIUs and train PIU staff in the period between completion of the TA and the commencement of Project implementation. The Project consultants and PCU will also provide ongoing technical and management support to PIUs throughout Project implementation. Additional support in the form of consultants and training will build the capacities of district BNPs, OPWTs and communities to manage, operate and maintain the new water supply and sanitation infrastructure; this support will commence during Project implementation and will continue for at least 12 months following commissioning.

Lack of Qualified Water Supply Engineers: Compared to neighboring countries, Lao PDR has relatively few specialist water supply engineers per head of population, and most PNPs have only one water supply engineer on staff. Currently, some 55 civil engineers graduate from Lao Universities each year, but only about 2-3 of these follow a career in the water industry, barely sufficient to replace those retiring from the industry27. Given the high growth of urban areas throughout the country and the large number of small town water supply systems planned for development over the next 10 years, there is an urgent need to encourage more engineers to enter the Lao water supply sector. Preliminary estimates28 indicate that an additional 106 water supply or environmental engineers are required by 2015 (i.e. about 14 per year), which is four times the current rate of supply. The shortage of qualified engineers is a serious constraint to sustainable operations of the PNPs, and is most severe in the remote provinces which find it difficult to attract skilled professional staff. The proposed Project will address this problem by assisting WSD to develop a human resources strategy and providing direct financial assistance in the form of scholarships for water supply engineers.

Connection Charges: Apart from tariff levels, the financial sustainability of the PNPs also depends on the number of connections and the volume of water sold. Under the WSSSP, connection levels are only about 60% of those projected in feasibility studies. The high cost of connections acts as a deterrent for households to connect to the PNP system, particularly poor and low income households who reside in back streets, and often have to pay for the high cost of meters and service pipes from the main water lines up to their house. In the WSSSP, the designs underestimated the quantities of small bore reticulation pipes, resulting in low connection rates and additional costs for consumers who are required to pay for the reticulation pipes in addition to connection costs.

The proposed Project will assist poor and low income groups to participate in the piped water supply system, by waiving upfront fees for connections for households that apply to connect during the designated construction period. This connection policy will be supported by awareness and marketing campaigns to encourage new connections and inform households about the connection policy and application procedures.

Raw Water Assessments: Data on water quality and flows for raw water sources are inadequate or non-existent in most of the small towns. A high proportion of water supply systems developed in previous projects have failed to meet their design targets because of inadequate raw water assessments at the design stage. For example, among the six sample subprojects studied under the NCRWSSP and STWSP, four of the originally selected sources were found to have inadequate dry season water flows.

The lack of raw water data represents a substantial risk that subprojects will be delayed, the investment will be ineffective or that subproject preparation costs based on infeasible sources will be wasted. The Project PNPs will be required to undertake monitoring of raw water flows and water quality over at least three dry and wet seasons prior to project construction, thereby reducing the risks of failure. Streamflow assessments should also include consultations with local villagers to take advantage of their local knowledge.

27 Source: Lao National University and personal communication WSD Director, July 2007. 28 Refer to Supplementary Appendix P.



Private Sector Participation: The low level of public-private partnerships (PPPs) in Lao PDR’s water supply sector is due largely to weak enabling conditions, including: (i) lack of clear supporting legal and regulatory frameworks; (ii) low Government capacity to design, implement and manage a PPP program; (iii) levels of cost recovery in the water sector that are insufficient to support PPP; (iv) lack of domestic private sector firms with the requisite technical and financial capacities, and; (v) limited access to credit. About 1,300 private companies are engaged in the water supply industry: construction companies, drinking water factories (bottled water), and equipment suppliers. A small but growing segment of PPP is emerging.

GOL strategy, confirmed in NSEDP6, encourages greater private sector participation in urban infrastructure and services, including urban water supply. The strategy aims to raise utility tariffs to cost-recovery levels, reduce budgetary subsidies, improve their business performance and increase private participation and investment. The introduction of the Enterprise Law, with simplified registration procedures, is an important step to improve the business and investment climate.

Over the past five years, WASA has actively promoted PPPs in urban supply with support from various development partners. As a result, the first two official private sector water supply concessions were put into operation in April 2006 in Feuang District Town and in four villages of Vang Vieng District (both in Vientiane Province), with support from the French INGO, ‘GRET’,29 an organization sponsored by the French water utility SEDIF. The tariffs have been set at 2,000 Kip/m3 for domestic and 2,400 Kip/m3 for business. The PPPs are regulated through 25-year concession contracts executed by the private service provider, district government and countersigned by WASA.

GRET has GOL authorization to develop with WASA similar water supply concessions in six new sites in two provinces. WASA is also working with the Public Private Infrastructure Advisory Facility (PPIAF) together with the World Bank and the Global Partnership for Output Based Aid (GPOBA) on the promotion of private sector investment in the urban water supply sector. The support aims to develop water supply systems in up to 21 small towns using local/regional private operators through the use of output-based subsidies targeted to the poor.

Small-scale independent providers and private cooperatives operate informal piped water supply systems in several of the Project towns. In such towns where private operators exist, the Project will explore appropriate PNP-private sector cooperation models with the PNPs, private sector operators and communities. Possible models include concession contracts similar to those piloted by GRET for peri-urban areas or clusters of villages outside the PNP’s service area.

Cooperation Between MPWT and Ministry of Health: Based on Decision 37/PM, MPWT is responsible for water and wastewater management systems in urban areas throughout the country, while the Ministry of Health (MOH) is responsible for public health, rural water supply and urban and rural environmental hygiene. The National Center of Environmental Health and Water Supply (Nam Saat) within MOH facilitates, advises, promotes and develops rural water supply and sanitation, and urban and rural environmental hygiene through community based approaches. Close cooperation and coordination between the two ministries is essential because of the strong linkages between safe water supply, sanitation, environmental hygiene and health.

However, MPWT and MOH responsibilities for water supply and sanitation overlap to a large extent because of the weak water and sanitation sector framework and because urban and rural areas are not clearly defined. Both organizations issue water quality guidelines or targets for drinking water, and to confuse matters further, Nam Papa Vientiane Nakhonluang (in Vientiane), which operates the largest water testing facility in the country, uses its own water quality guidelines.

Although urban water supply is developing at a rapid pace, the rural water supply sector, containing about 73% of the country’s population is lagging through lack of investment. Many Nam Saat systems throughout the country are failing because of a lack of resources and expertise to operate and maintain the systems.

29 This is taking place under the MIREP program (Mini Reseaux d'Eau Potable) supported by Research and

Technological Exchange Group (GRET).



While individual property owners are responsible for developing and managing their on-site sanitation systems, they vary in quality and safety because of weak provincial sanitation regulations and unclear institutional responsibilities. Current legislation does not clearly define responsibility for sanitation, which involves several different provincial and district agencies, including the line agencies of MPWT and MOH, PNPs and UDAAs. As a result there is often confusion regarding responsibility for sanitation, particularly at the district level. For example in Viengphoukha, the OPWT representatives consider that the district office of health (OOH) is responsible for the town’s sanitation because of its previous involvement with an NGO in small scale water supply and sanitation system development.

While cooperation and collaboration between the two government agencies is required at all levels, in reality, it is most important, and most likely to happen, at the provincial and district levels. Representatives of the two ministries consider that inter-agency co-operation is excellent and cited30 two examples associated with R3 Road Project for which MPWT was the Executing Agency. For the World Bank Section between Luangnamtha and Chinese border, MPWT and Nam Saat Central cooperated closely and also worked with provincial and district Nam Sa’at offices to develop water supply and sanitation for villages along the route. There was extensive consultation and interaction between the two agencies, including joint overseas seminars and workshops. For the ADB-funded section of R3 between Bokeo and Luangnamtha, MPWT worked directly with the provincial and district Nam Saats and PNPs. On that occasion, Central Nam Saat was not involved, but cooperation between the agencies at provincial and district levels was also considered to be excellent.

Despite the good level of cooperation between the two ministries, the detailed mechanisms for coordination and cooperation between the ministries are compromised because the framework for water supply and sanitation in both urban and rural areas is weak. In recent months, the two ministries have held extensive discussions regarding their future roles in the water supply and sanitation sector within the context of the proposed Water Supply Law. Early indications are that the MPWT may take over responsibility for rural water supply and sanitation infrastructure in both urban and rural areas, while MOH may retain responsibility for water quality guidelines/monitoring and environmental hygiene. While closer cooperation and coordination between the two ministries is necessary, the detailed mechanisms for improved coordination will need to wait until the water supply and sanitation sector framework has been developed through the Water Supply Law. In the meantime, the WSD of MPWT continues to work on drafting the Law in close consultation with MOH.

The proposed Project can build on cooperation models from other projects, but the opportunities to make institutional changes in MPWT/MOH coordination at central level through the Project are very limited, and are dependent on prior completion of the sector framework. Collaboration and cooperation at central level would include: (i) consultation on existing programs; (ii) review of some effective models of collaboration from previous projects, and; (iii) information sharing e.g. inviting MOH to attend workshops, review and discuss reports and findings, and share materials developed by the Project. The Project could also facilitate links between key personnel in MPWT and MOH, for example by having a MOH representative on the MPWT drafting committee for the Water Supply Law or having a MPWT representative attend some key planning meetings for water supply and sanitation health and hygiene awareness. At the provincial and district level collaboration would be through joint committees and working groups e.g. the PIU, so it would be much more “hands-on”. The Project consultants would review past public awareness campaigns and attempt to work in with MOH programs and those of other donors. New initiatives would be shared with MOH and other donors.

Poor Construction Quality: Post-construction reviews of many of the small water supply systems in Lao PDR reveal deficiencies in construction standards, largely because of poor supervision, lack of accountability and limited participation by project owners in the construction approval process. Project initiatives to address poor construction quality will include: (i) clearly defining the roles of project stakeholders in quality assurance; (ii) making PIA consultants and the PCU accountable for construction quality, and delegating appropriate powers to the PIA consultants under the construction contracts; (iii) requiring the consultants and PCU to undertake regular inspections of construction works (3 monthly or at critical times) to support locally-based supervisors, and prepare regular reports on construction quality for submission to DHUP, PPSC, PNP, and district governor, and; (iv) requiring 30 Meeting between Deputy Director, Dr Soutsakhone Chanthaphone , Deputy Director of Nam Sa’at Central and

TA4875-LAO consultants, September 2007.



the PNP, DPWT and district governor to approve the quality of the completed works before acceptance and final payment to the construction contractor.

An important measure to safeguard construction quality will be for the PIA consultant to engage site supervisors from Vientiane to supervise construction in the Project towns, rather than relying on locally-engaged supervisors who often have little experience and are unduly influenced by local pressures.



TOWN & SUBPROJECT SELECTION PROCESSFIGURE 2

Step 1Government nominates 26

longlisted towns

Step 2Longlisted towns are evaluated using agreed screening criteria

Step 3Towns are prioritized using

agreed criteria to select 10-20 priority towns

Step 4Following feasibility study, the

priority towns must meet agreed eligibility criteria before being

approved for funding

3. CANDIDATE TOWN SELECTION

3.1 General The Project meets the Bank’s criteria for a sector investment modality. A Sector Policy and Water Sector Investment Plan (WSIP) have been prepared and approved by GOL. The Executing Agency, MPWT, is a very experienced organization which has successfully implemented all of the Bank’s previous water supply projects, including the WSSSP and the ongoing NCRWSSP sector investment projects. The implementing agencies will be the provincial DPWTs, and the PIU will include senior personnel from the PNPs, who have the basic experience necessary to implement small water supply systems.

The Project is formulated as a sector investment, covering about a 2-3 year period of the GOL’s Sector Investment Plan (WSIP) to 2020. The WSD updates the priority list of investment projects annually, according to the criteria in the WSIP. The Project cost is estimated at $32 million, including $17.7 million31 for new water supply systems. This represents about 7% of the total projected total urban water supply investments to 202032, or 20% of the required investment for the remaining 78 small towns that do not have piped water supply systems.

3.2 Sector Approach

3.2.1 General The proposed Project will build on two earlier ADB-funded water sector investment projects for small

towns, namely the WSSSP, which is nearing completion, and the NCRWSSP, which is ongoing. All three projects are formulated as sector projects, requiring the small towns and their provincial and district authorities to demonstrate their commitment to the Project and its associated reforms, thereby encouraging a demand-driven approach.

Under the sector approach, each subproject town is required to: (i) meet initial screening criteria before the subproject is accepted as a candidate for possible inclusion in the Project and; (ii) meet eligibility criteria agreed by ADB and GOL before the subproject is approved for funding.

Figure 2 shows the four steps involved in evaluating, prioritizing and selecting the towns and subprojects for the Project. The final number of towns included in the Project depends on the amount of funding provided by ADB, Government and other funding agencies. GOL has indicated that it will actively seek alternative funding from other development partners for towns that do not receive funding under the STWSP.

3.2.2 Screening and Eligibility Criteria Screening and prioritization of the towns was conducted in the Inception phase of TA4875-LAO, based on criteria developed for the previous ADB water supply sector projects in Lao PDR and other factors such as Government priorities, poverty level

31 Estimated base cost of the new water supply systems plus 33% for project implementation assistance and

capacity development. 32 Reference: Water Supply Investment Plan, 2004. Final Report for TA3903-LAO.



in the district, support by other development partners for water supply projects in the province, and results of stakeholder consultations and site inspections33 to assess the need and demand for paid piped water supply in the towns. The final list of towns will be grouped geographically to minimize costs and enhance implementation efficiency. Results of the screening and prioritization of towns were presented and agreed by participants at the Inception Workshop in June 2007.

3.3 Evaluating and Prioritizing the Longlisted Towns

3.3.1 Evaluation Using Initial Screening Criteria The 23 systems requiring new water supply systems were evaluated against seven agreed screening criteria which are summarized in Table 3-1. In summary, all towns meet the initial screening criteria, except Boulapha, Viengthong, Boontai and Phaxay which do not reach the minimum population threshold. Findings of the evaluation were as follows: (i) all nominated towns are included in the 2007 WSIP; (ii) although some towns have PNP or private piped water supplies, these provide low service coverage and are not considered to be significant; (iii) several towns are being considered for the World Bank’s GPOBA, but this is uncertain, and, they will remain as candidates for possible inclusion in the Project unless it is decided that they will receive funding under the GPOBA; (iv) four towns are not expected to reach 4,000 population by 2015, namely Boualapha, Viengthong, Boontai and Phaxay and these towns are unlikely to receive funding under the Project because of concerns over the efficiency of investment and sustainability of the water supply systems; (v) only 10 of the 23 towns nominated for new systems have government approved urban master plans; the remainder will need to produce approved master plans by the end of 2007; (vi) the concerned governments will need to agree to the policies and reforms developed during the TA and agreed by GOL and ADB, and; (vii) none of the PNPs has undertaken regular assessments of raw water flows and quality for potential water sources but will need to undertake measurements during the next four wet and dry seasons.

The three existing systems nominated for rehabilitation were evaluated against six screening criteria, also shown in Table 3-1. Findings were as follows: (i) the three proposed subprojects meet the requirements for essential works to relieve dry season water shortages, improve supply reliability and/or enhance water quality; (ii) in all three cases, the proposed subproject costs are less than the funding limit of $150,000; (iii) the rehabilitation works are not caused by faulty or inadequate O&M and do not aim to expand or augment the capacity of the existing water supply system; (iv) the district agencies confirmed that the subprojects are not being considered by other development partners; (v) the concerned governments will need to agree to the policies and reforms agreed by GOL and ADB for the Project, and; (vi) the PNPs will need to undertake flow and water quality measurements and assessments during the next four wet and dry seasons.

3.3.2 Prioritizing the Longlisted Towns The 26 nominated towns were prioritized using criteria that reflect Government’s priorities and policy objectives, including: (i) GOL development priority as indicated by the order of towns in the longlist; (ii) projected population in 2015; (iii) degree of urbanization, including nature of development, population density and proximity of core villages; (iii) development potential including such factors as; (a) location in economic growth corridor, in economic development zone, on national road, on international border, at transport node, and; (b) potential for tourism; (iv) poverty level, and; (v) previous investment in water supply and sanitation in the province. Supplementary Appendix B describes the methodology and results of the prioritization. Results are summarized in Table 3-2, which identifies ten first priority and ten second priority towns for possible inclusion in the Project.

33 The TA consultants conducted site inspections, interviews with provincial and district agencies and villagers, and

data collection in 14 towns in the period 27 May to 10 June 2007.



Table 3-1: Initial Screening Criteria and Eligibility Criteria for the Project A. Screening Criteria: Subprojects that require new water supply systems must meet the following screening

criteria before they will be considered for inclusion in the Project: (i) the subproject is listed in the Water Sector Investment Plan, and is given high development priority by central,

provincial and district governments (ii) the subproject town does not have a significant piped water supply system and shows a large demand for paid

piped water supply (iii) the subproject is not being considered for funding by an external donor other than the ADB (iv) the projected subproject design population will be more than 4,000 by 2015 (v) the subproject town has a government-approved urban master plan (vi) the provincial and district governments and the Provincial Nam Papa (PNP) agree to adopt the Government’s

water sector policies, cost recovery principles and tariff reforms agreed by Government and ADB (vii) PNPs have undertaken regular flow and quality measurements for the potential sources of water for the town

B. Screening Criteria: Subprojects with existing water supply systems requiring rehabilitation must meet the following screening criteria before they will be considered for inclusion in the Project:

(i) Rehabilitation works are limited to essential works necessary to improve supply reliability, distribution pressures or enhance water quality to meet WASA guidelines.

(ii) Rehabilitation works are minor and costs are kept to a minimum, with an upper limit cost of US$150,000: (iii) The rehabilitation works are not caused by lack of operation and maintenance, and exclude system expansion

and capacity augmentation (iv) The subproject is not being considered for funding by an external donor other than the ADB (v) The provincial government and PNP agree to the Government’s water sector policies, and the cost recovery

principles and tariff reforms agreed by the Government and ADB (vi) PNPs have undertaken regular flow and quality measurements for the potential sources of water for the town

C. Eligibility Criteria: If the subproject meets the screening criteria and has high priority for development, it will be subject to feasibility study. The subproject must meet the following additional requirements and criteria as a condition of approval for funding

(i) The Feasibility Study shows that the subproject: (i) meets the ADB’s and Government’s technical, economic, financial, and institutional requirements for the Project; (ii) does not have significant negative social or environmental impacts, and; (iii) is Category “B” according to the ADB’s environmental classification

(ii) The subproject does not require significant resettlement or land acquisition (iii) The provincial government and PNP agree to adopt the Government’s water sector policies and tariff reforms

agreed by the Government and ADB (v) The subproject covers only the most densely populated core villages (vi) The subproject must generate sufficient revenues to meet full operation and maintenance (O&M) costs and

cover debt service (i.e. repayment of principal and interest on the subsidiary loan from Government to PNP) (vii) The provincial and district governments agree to provide adequate budget allocations to meet the O&M costs of

the subproject’s drains and public sanitation facilities (viii) The PNP has identified potential sources of surface water or groundwater supply for the subproject and has

collected adequate flow and water quality data for each potential source to demonstrate adequate minimum flows and establish water treatment requirements

(ix) The provincial government and the relevant central government agencies have approved the Resettlement Framework and Resettlement Plan for the subproject, and have agreed to implement the Plan in accordance with GOL and Bank policies

(x) The provincial government and the relevant central government agencies have approved the environmental assessments and social impact assessments prepared in accordance with ADB and Government policies

(xi) The Executing Agency and project implementation consultants confirm that the province, district and PNP are ready to implement the subproject based on the following factors: (i) establishment of the PIU prior to the start* of Project implementation, including the appointment of qualified, competent staff with adequate training; (ii) the capacity of the PIU to manage the project; (iii) the capacity and plans of the PNP to manage, operate and maintain the proposed water supply system, including arrangements for ongoing training, technical and management support; (iv) debt service capacity of the PNP, and; (v) increase of tariffs in the province to financially sustainable levels recommended by WASA prior to the start* of Project implementation.(*early 2009).



3.3.3 Three Sample Subprojects GOL and ADB agreed that three sample subprojects will be selected for detailed feasibility study during the project preparation, including two new water supply systems and one existing system for rehabilitation. The sample subprojects will be representative of the candidate subproject towns in terms of access, size of towns and complexity of systems.

The selected sample subprojects are: Viengphoukha, Songkhone, and Huoixai. The reasons for recommending these towns are: (i) the three towns are first priority towns that are most likely to receive funding under the proposed Project; (ii) Viengphouka and Songkhone require new water supply systems, while Houeixay has an existing water supply system that requires rehabilitation; (iii) all three towns have government-approved urban master plans; (iv) the towns are diverse in term of size, location and characteristics.

Table 3-2: Assessed Priorities for Development Assessed Town Province Priority Comments

Priority Group 1 Viengphoukha Luangnamtha First priority Sample Subproject

2 Huoixai Bokeo First priority Sample Subproject

3 Sephone Savannakhet First priority

4 Champassack Champasack First priority

5 Add Huaphanh First priority

6 Botene Xayabury First priority

7 Pakbeng Oudomxay First priority Candidate for GPOBA

8 Thateng Sekong First priority

9 Khop Xayabury First priority

10 Songkhone Savannakhet First priority Sample Subproject

11 Namthouam Luangprabang Second priority Candidate for GPOBA

12 Vangvieng Vientiane Second priority

13 Pha Oudom Bokeo Second priority

14 Lakhonepheng Saravane Second priority

15 Non Hai Vientiane Second priority

16 Saravane Saravane Second priority

17 Paksong Champassack Second priority

18 Xaysettha Attapeu Second priority

19 Long Luangnamtha Second priority

20 Kasy Vientiane Second priority Candidate for GPOBA

21 Nonghed Xiengkhuang Second priority

The 10 towns in the highest priority group are expected to be the first towns to receive funding under the Project provided that (i) adequate funds are available; (ii) the concerned provincial and district governments and the Provincial Nam Papas (PNP) are ready to implement the subproject; and, (iii) the concerned provincial and district government and subprojects comply with the Project eligibility criteria agreed between GOL and ADB. The second priority towns will receive funding after towns in the first group, based on similar criteria. The order in which subprojects are implemented also depends on geographical grouping of the subprojects to minimize costs and maximize implementation efficiency

3.4 Subproject Appraisal and Approval The PCU with support from consultants will conduct a feasibility study and prepare a subproject appraisal report (SAR) for high priority subprojects that meet the screening criteria and are assessed as ready to implement the Project. The PCU will submit the SAR to the Bank for approval on behalf of the subproject town.



Following Bank approval, the MPWT, provincial governor, DPWT director (on behalf of the implementing agency) and PNP director will sign a subproject agreement. In addition, a subproject loan agreement will be signed by the Ministry of Finance (MOF), provincial governor and PNP director on behalf of the PNP which will be the recipient of the subsidiary loan.

The subproject agreement and subproject loan agreement must be submitted to the Bank for approval. Following Bank approval, implementation will proceed in accordance with the agreed framework for project implementation.

The provincial governor’s signature to the subproject agreement and subproject loan agreement demonstrates the province’s commitment to the subproject and confirms its position as guarantor for the subproject loan. These documents will describe conditions and covenants that must be satisfied by the subproject province and town before, during, and after subproject implementation.

3.5 Content of Subproject Appraisal Report The subproject appraisal report will summarize the Subproject Feasibility Study and provide the following information:

(i) subproject need, rationale, and description, including description of target beneficiaries;

(ii) technical analyses and engineering designs to confirm the technical feasibility of the proposed subproject;

(iii) review of technically feasible options;

(iv) least cost analyses of technically feasible options;

(v) initial environmental examination;

(vi) initial social impact assessment including clear demonstration of stakeholder consultation;

(vii) cost estimates and financing plan;

(viii) land acquisition and resettlement plan in accordance with the Project’s Resettlement Framework;

(ix) economic justification;

(x) tariff calculations showing the level of tariffs necessary to meet the Project’s cost recovery objectives;

(xi) financial sustainability, financial feasibility and affordability analyses;

(xii) the PCU and consultant’s assessment of readiness to implement the subproject, including: (a) evidence of compliance with the agreed eligibility criteria; (b) an assessment of PIU capacity and plans for project implementation, and; (c) an assessment of PNP capacity and plans for managing, operating and maintaining the infrastructure developed or rehabilitated through the Project.

(xiii) sanitation regulations

(xiv) source protection regulations

3.6 Candidate Project Towns The 21 candidate towns have received little or no external assistance to date. All towns are listed in the GOL’s Water Sector Investment Plan, and have been accorded high priority for water supply development by the central, provincial and district governments. Nineteen of the 21 towns are district centers (excluding Namthouam and Non Hai) and all 21 towns have urban characteristics, with Y2006 populations ranging from about 2,980 to 13,380. Although Nam Thouam is not a district center, it has high priority for infrastructure because of its emerging role as a special economic zone. Non Hai is a rapidly growing small town in Feuang district, and is expected to become the district center in the near future.



The poverty levels of the 21 candidate districts vary from 4 to 86% (average 31%), compared to levels of 0-60% (average 13%) for the urban centers. Ten of the 21 districts included in the Project are currently designated as very poor or poor districts. Six of the 21 districts, namely Long, Viengphoukha, Pakbeng, Pha Oudom, Nonghed, Sepone) are on the list of 47 districts classed as priority poor by GOL, while a further four, Add, Khop, Xaysetha and Feuang (Non Hai) are among the 74 poorest districts. Development of water supply in these small towns is expected to improve the quality of life of residents, support economic development and contribute to poverty reduction.

Nine of the candidate towns are located on or close to international borders. Government development strategy encourages investment in the border towns to provide services for import-export, tourism and border transport, generating additional employment opportunities for the rural people in the surrounding areas. Vangvieng and Champasack are centers of tourism which is identified in NSEDP6 as a priority sub-sector for development.

Tables 3-3 and 3-4 summarize the characteristics of the candidate project towns and their proposed water supply systems.



Table 3-3: Candidate Towns – Existing Infrastructure and Proposed Water Supply Systems Existing Infrastructure in Core Villages Proposed Water Supply Development

Initial Priority

Name of Small Town Province Y2006

Pop’n Main

Roada Water Supplyb

Road kmc

Latrines% of HHd

Solid Waste Mgt

Grid Elect-ricity

Design Capacitye

m3/day Source Typef Source Name (km

to Core)g Comments

1 M. Viengphoukha Luangnamtha 2,975 R3 NS, W, R 6.4 79 No No 890 River/EP Nam Chouk (3.5)

19 M. Long 5,147 17A,17B NS, W, R 10.5 36 No No 1,190 Stream/Gravity Nam Longnoy (6) Border

7 M. Pakbeng Oudomxay 4,395 R2W W, R 11 78 No No 1,060 Stream/DP Houy Chong (6)

13 M. Pha oudom Bokeo 4,234 N NS, W 20 52 No Yes 1,140 River/EP Nam Hat (1) Border

2 M. Huoixai 9,442 R3 PNP, R, W 29 71 Yes Yes n.a. Stream/Gravity Houytap (12) Border

11 Namthouam Luangprabang 13,253 R13N NS, R 16.5 41 No Yes 3,920 Stream/Gravity Nam Khan (7) Econ. Zone

5 M. Add Huaphan 6,033 R6A W, R 12 77 No Yes 1,580 River/EP Nam Ma (1)

6 M. Botene Xayabuly 4,067 P, D NS, W, R 12 100 No Yes 1,010 Stream/Gravity NamHam (3) Border

9 M. Khop 6,491 P, D W, R 18 88 No Yes 1,580 Stream/Gravity Nam Khop (10) Border

21 M. Nonghed Xiengkhuang 4,407 R7A R 18 97 No No 1,020 Stream/DP Phaleene (10) Border

15 Non Hai Vientiane 11,841 N W, R 16.5 53 No Yes 3,560 River/EP Namhon (1)

20 M. Kasy 7,937 R13N NS, W, R 11 80 Limited Yes 1,910 Spring/Gravity Phachao (11.7)

12 M. Vangvieng 8,409 R13N PNP, R, W 27 99 Yes Yes n.a. River/EP Namlao Tourism

10 M. Songkhone Savannakhet 13,377 R13S W, PNP, R, SSIP 35.2 87 Limited Yes 3,000 River/EP Xebanghieng (9)

3 M. Sepone 7,287 R9 W, R 10 62 No Yes 1,490 River/EP Xebanghieng (2) Border

14 M. Lakhonepheng Saravane 4,150 R13S W 8.5 21 No Yes 910 River/EP Xebangnouan (12) Border

16 M. Saravane 11,383 R20,R15A PNP, R, W 25 86 Yes Yes n.a. River/EP Sedon (0.5)

8 M. Thateng Sekong 4,441 R16 PNP, SSIP, W, R 12.5 76 No Yes 1,140 Stream/Gravity Houynamsay (4)

17 M. Champasack Champasack 9,833 P, R14A SSIP, W, R 25 62 Limited Yes 2,240 River/EP Mekong (2.5) World Heritage

17 M. Pakxong 6,999 R16 W 20 44 No Yes 1,790 Stream/EP HouyChampy (2) Tourism

18 M. Xaysetha Attapeu 9,714 R16A SSIP, W, R 18 67 No Yes 2,110 River/EP SeKhaman (1.5) Border

TOTALS OR AVERAGES 155,815 439.6 68 31,540 Notes: Source of data: TA4875-LAO Phase 1 Surveys by TA consultants and Data Sheets completed by provincial and district agencies in May-June 2007. a. Road passing through town: R = regional road; N = national road; P= provincial road; D = district road b. Main sources of water supply: W = well; T = tubewell; NS = Nam Sa'at; R = River, stream; PNP = Nam Papa piped system; SSIP = small scale independent provider (private piped water supply operator) c. Length of roads in core villages including sections of regional and national roads. d. % of households with pour flush pit latrines e. Forecast water treatment plant capacity in 2025, based on either: (i) existing feasibility study; or (ii) 2.5% population growth rate, 80Lpcd consumption and 25% unaccounted-for-water (ufw) if feasibility study not available. Note: unaccounted-for-water is the difference between water production and authorized consumption. f. DP = diesel pumping; EP = electric pumping. g. km to core means distance between the proposed intake for raw water source to the center of the core villages i.e. the location of government administration offices. h. Three towns have existing PNP water supply systems that require rehabilitation, namely Houixai, Vangvieng and Saravane.



Table 3-4: Candidate Towns – Existing Socio-Economic Conditions Households Ethnicity (% HH) Poverty Rate

(% HH) Main Source of Water

Name of Small Town Province

No of Core

Villages Y2006 Pop’n

Projected Y2015 Pop’n

M/F Ratio No. Average

Size Tai-

Kadai Mon-

Khmer

Hmong-Tien & Sino-

Tibetan

Core Villages District

Nam Sa'at/PNP

(% HH) Private (% HH) Well River/

Stream

Water Seal

Latrine (% HH)

Viengphoukha Luangnamtha 3 2,975 4,100 0.91 591 5 7.4 92.3 0.3 59.8 55.7a 25 79

Mouang Long 6 5,147 6,300 1.27 749 6.9 63 4 33 21.7 80.6a 100 36

Pakbeng Oudomxay 6 4,395 5,500 1 766 5.7 32.9 63.7 3.4 42.3 86.3a 42 78

Pha oudom Bokeo 9 4,234 5,600 0.91 866 4.9 58.1 41.9 35.4 55.9a 52

Huoixai 8 9,442 11,800 0.89 1,819 5.2 88 12 4 4 83 71

Namthouam Luangprabang 12 13,253 18,100 1.01 2,187 6.1 31 51.3 17.7 19.6 5.4 90 41

Mouang Add Huaphan 11 6,033 7,900 1.16 1,041 5.8 92.9 7.1 30 52.6a 77

Botene Xayabuly 5 4,067 5,100 0.98 832 4.9 99.8 0.2 0.4 50 100

Mouang Khop 9 6,491 8,200 0.97 1,258 5.2 96 0.4 3.6 10 28.0a 88

Nonghed Xiengkhuang 8 4,407 5,400 1.02 643 6.9 14.6 1.2 84.2 1 54.8a 50 3 97

Non Hai Vientiane 6 11,841 16,600 1.01 1,799 6.6 17 9.1 73.9 26 13.3 53

Kasy 8 7,937 9,900 1.01 1,645 4.8 69.5 28.9 1.5 7 25 80

Vangvieng 7 8,409 9,800 0.94 1,569 5.4 96.7 2.6 0.7 1.7 90 99

Songkhone Savannakhet 12 13,377 15,400 0.98 2,564 5.2 100 0.8 11 9 87

Sepone 7 7,287 8,300 1.09 1,148 6.3 93.5 6.5 29.1 76.4a 62

Lakhonepheng Saravane 10 4,150 5,000 0.98 709 5.9 100 0 21

Saravane 8 11,383 14,500 1.02 1,995 5.7 60.9 39.1 4.5 74 86

Thateng Sekong 3 4,441 5,800 0.98 772 5.8 47.4 52.6 7.2 7.8 30 3 76

Champasack Champasack 14 9,833 12,000 0.98 1,788 5.5 100 7.2 8.2 10 62

Pakxong 4 6,999 9,100 1.01 1,234 5.7 29.3 70.7 10 12.2 44

Xaysetha Attapeu 9 9,714 11,600 0.88 1,879 5.2 83.7 24.3 14.9 43.7a 15 67

Totals 165 155,815 196,000 27,854 5.6 69.2 21.7 9.7 13.4 31.4 70 Notes: Source of data: TA4875-LAO Phase 1 Surveys by TA consultants and Data Sheets completed by provincial and district agencies in May-June 2007. a) In the absence of data provided by district authorities, the district poverty rate is the 2001/2002 rate as reported in the NGPES.



4. WATER SUPPLY & SANITATION DESIGN & TECHNOLOGY

4.1 Project Focus The Project’s proposed technical infrastructure includes water supply development or rehabilitation, urban drainage improvements, village drainage improvements and on-site sanitation systems. The Project will focus on water supply which is the highest development priority34 among district agencies and communities in 19 of the 21 towns, and second priority (behind road construction) in Saravan and Champasack. Water supply infrastructure will account for an estimated 53% of the Project’s base cost. Drainage and sanitation improvements will accompany water supply development, to ensure proper disposal of the increased quantities of wastewater generated as a result of the new or improved water supply systems.

Drainage improvements ranked as second or third priority among nine of the 21 towns. Most of the district agencies considered that problems related to poor drainage were of low to moderate significance, although in all towns, poor drainage conditions exist in local areas such as markets. The Project’s drainage improvements will focus on: (i) primary and secondary drains in priority areas of the towns, and; (ii) demand-driven village environment improvements, selected by the communities. Investment in drainage improvements will be limited to a fixed amount per town, concentrating on areas where drainage conditions are worst. Primary and secondary drainage improvements are expected to account for about 4% of the Project’s base costs and village drainage for a further 5%.

Almost 70% of households in the towns have water-seal pit latrines. However, the coverage of pit latrines varies markedly between the towns from 21% to 100%. Accordingly, only three of the 21 towns nominated household sanitation as their second or third development priority. Investment in household sanitation will depend on the demand of the households, but are expected to account for about 2% of Project base costs.

4.2 Development in Accordance with Urban Master Plans For reasons of efficiency and cost-effectiveness, the water supply and drainage developments in each town will cover the core urban villages which have the highest concentrations of urban development and population.

The proposed infrastructure developments will follow the approved urban masterplans in each town, to ensure that the proposed water supply and drainage systems are compatible with the long term physical development plans for the towns. The masterplans define the road rights-of-way, within which most of the water supply pipelines and drainage facilities will be located; therefore they define the location of the pipelines and provide the basis for land acquisition and compensation plans.

A review of available masterplans indicates that they provide a reasonable basis for the planning and preliminary design of water supply and drainage improvements for the Project. However, the masterplans are essentially land use plans which show road layouts and proposed land zoning. The masterplans do not provide specific plans for other infrastructure, and may need to be modified to cover other infrastructure, such as primary drains that do not follow road alignments. More detailed studies will also be necessary at the detailed design stage to confirm the timing, nature and distribution of future development, particularly forecast industrial development and its associated water demands.

The Phase 1 survey for TA4875-LAO revealed that only 15 of the 21 towns has approved urban masterplans. Another three towns have urban masterplans (namely Long, Namthouam, and Nonghed), but provincial and district agencies were unable to provide approval details. Three towns do not have any masterplans, namely Kasy, Non Hai and Lakhonepheng.

The detailed feasibility studies for Viengphoukha and Songkhone revealed that their urban master plans were inadequate, because: (i) in Viengphoukha: (a) the urban master plan does not cover the

34 In the Phase 1 TA4875-LAO surveys, district agencies and communities were asked to allocate priorities between

seven nominated types of infrastructure development, and were invited to nominate others.



new development area and R3 Road Camp, and (b) the master plan needs to be modified to include the proposed primary drain between Dongvieng village and the Nam Chouk, and; (ii) in Songkhone, the urban masterplan does not cover Cluster 12 villages.

The eligibility criteria for the Project require that each Project town has a government-approved urban masterplan that covers all of the urban areas affected by its subproject. Currently, only a few of the towns meet this requirement, as the urban masterplans do not cover all of the core villages.

4.3 Water Supply Service Levels The Project aims to improve quality of life and health profiles in the target communities and enhance the role of the small towns as economic centers. To achieve these objectives, the new or rehabilitated small town water supply systems will be designed and constructed to meet service levels in line with GOL policy, WASA and WSD guidelines and the service levels adopted on the two previous ADB sector investment projects. The proposed service levels are: (i) water of potable quality35 meeting WASA water quality regulations; (ii) 24-hour continuous supply; (iii) 10m minimum pressure in the distribution network, and; (iv) individual house connections with meters.

The proposed service levels are similar to those adopted in Thailand and other developed countries. Experience on the WSSSP and NCRWSSP show that the base cost of small town water supply systems in Lao PDR based on the above service levels are generally in the range of US$80-170 per capita. While costs could be reduced by adopting lower service levels, such a change would require reversal of previous direction in the sector and may not be acceptable to GOL or consumers, and may affect the PNP’s ability to recover costs for the water supply service.

4.4 Water Supply Design and Planning Periods The Project is scheduled for implementation in the period 2009-2013. The first group of subprojects are scheduled for completion in 2011, but planning will consider development to 2025-30, to ensure that adequate provisions are made in the Project for future expansion, facilities are sized economically, and land is reserved for future facilities. The proposed design horizons for intakes, raw water transmission and water treatment plants were determined by least cost analyses, while design periods for other parts of the system were determined by practical considerations. (e.g. problems and risks associated with future land acquisition and upgrading operating water supply systems in growing urban areas).

Least cost analysis has been undertaken to determine the optimum size and timing of water treatment plants and raw water transmission mains, based on water demand projections to 2030 for the core villages. Results are summarized in Table 4-1 which shows adopted design periods for various parts of the proposed water supply systems:

Table 4-1 – Recommended Design Periods Component Design Approach Intake and raw water transmission mains

Design for Y2030 demands

Water treatment plant Design for Y2025 demands, with provision (e.g. adequate hydraulic capacity) for plant uprating. Acquire adequate land to enable plant duplication in future.

Treated water transmission and trunk mains

Design for Y2030 demands, including provision for future extension to non-core areas.

Pumping Stations Design mechanical plant for Y2025 demands, with provision for pump (or impeller) replacement with larger capacity units after 2025. Acquire adequate land to enable pumping station duplication in future.

35 Substances in water which affect its clarity, color or taste may make water objectionable to consumers and hence

affect ability to recover costs. As many microorganisms are associated with particles in water, they may also represent a health risk as they extend microbial survival.



Component Design Approach Distribution and reticulation Design for Y2030 demands. Construct to extent of service area in 2011. Install small

bore reticulation to cover all existing buildings within service area, whether or not connections are made at the time of construction.

Service reservoirs Design and construct for 2025 demands. Acquire adequate land to enable reservoir duplication in future.

4.5 Water Demand Forecasts Water demand forecasts for each Project town were prepared by making separate projections of each component of demand, including domestic use (based on per capita consumption, coverage targets and population projections), industry, services and unaccounted-for-water.

Water demand and consumption data for other provincial and district towns in Lao PDR show that domestic consumption accounts for about 90% of total demand. Population projections for the candidate towns considered a range of factors, including: growth rates for the town in the preceding five year period, development projections for the town based on its function and development plans, underlying population growth for the concerned province, and assumptions concerning the main components of population growth i.e. new births/deaths and net migration based on census data36 for urban and rural areas by province. The adopted population growth rates for the 21 towns ranged from 1.5% to 3.8% in the period 2007-2015 and 1.2% to 3.2% for 2016-2025. A lower population growth rate has been adopted after 2015, to take account of the higher population density within the core villages which are expected to constrain further growth within these areas, and a reasonable decline in fertility and mortality” rates as forecast in the 2005 Census.

Per capita consumption figures for urban water supply systems in Lao PDR vary widely. For about 52 water supply systems throughout the country (excluding Vientiane capital), per capita consumption ranges from 36 to 191 Lpcd, with an average of 135 Lpcd, while for 31 small town water supply systems, the corresponding figures are 11 to 145 Lpcd, with an average of 79 Lpcd. (WSD Statistics for PNPs, 2006).

Based on household survey results and experience from other projects, per capita consumption for drinking and cooking is about 10Lpcd, while water for bathing and washing is in the order of 50 Lpcd. About 4-16 Lpcd will be required to operate a pour-flush toilet , so per capita consumption for a typical household with pour flush toilet is estimated at 64-76Lpcd. Experience in other towns in Lao PDR indicates that piped connections directly to the house will usually increase water consumption over time. On the other hand, some residents will continue to use existing free sources of supply such as wells or rainwater to minimize their overall water supply costs. For the STWSP, the feasibility designs have adopted per capita consumption figures of 80 in 2011 increasing to 100-120Lpcd in 2025, depending on the characteristics of each town, plus 20% for unaccounted for water (ufw)37.

4.6 Water Supply Design Considerations

4.6.1 Material and Construction Standards The Project will use international standards for critical components of the water and sanitation systems such as pipes, pumps and electrical/mechanical equipment to ensure compatibility between components from different sources, and ensure that spare parts will be readily available when required. This approach is expected to provide the least cost solution over the design life of the components (considering capital, operating, maintenance costs and reliability). The adoption of international standards does not preclude the use of high quality materials and equipment manufactured in Lao PDR to international standards and quality. Irrespective of country of origin, all

36 Results from the Population and Housing Census, 2005 and Report of Population Count, 2003, prepared by the

National Statistics Center. 37 Unaccounted-for-water is the difference between water production and authorized consumption. It consists of : (i)

apparent losses resulting from unauthorized consumption and metering inaccuracies, and; (ii) real losses (such as leaks, bursts, overflows and mains flushing) from mains, services reservoirs and service connections up to the point of the customer’s meter.



operation and maintenance manuals, operating and installation instructions for plant and equipment must be provided in Lao and English languages.

4.6.2 Pipe Materials In the past, for reasons of cost, polyvinyl chloride (uPVC) and polyethylene (PE) pipes have been widely used in Lao PDR for sizes up to 250mm diameter, and ductile iron (DI) or steel pipes have been used for larger sizes. The advantages of uPVC and PE over DI are lower capital and installation costs, and better corrosion resistance. PE pipelines are also well suited to rugged terrain, river or canal crossings where the material’s flexibility makes construction much easier and less costly than rigid DI or steel pipes. The disadvantages of uPVC and PE compared to DI or steel are that they are more susceptible to accidental puncture and are easier for making illegal connections. In normal ground conditions uPVC, PE, protected DI or steel pipes have similar durability and longevity. However, in aggressive conditions (e.g. saline or corrosive chemicals), uPVC and PE are superior.

For the STWSP Project, uPVC and PE pipes are recommended for pipe sizes ≤300mm diameter. For pipelines larger than 300mm diameter, DI pipes will be used. DI pipes will be fitted with anti-corrosion sleeves in aggressive soil conditions.

Table 4-2: Recommended Pipes in Transmission and Distribution System

Category Typical Diameter mm Recommended Type

Transmission DN200-800 DI, MS if >DN300;PE or uPVC ≤DN300 Distribution DN100-200 uPVC or PE Reticulation DN50-80 uPVC or PE Service Connection DN13-25 PE or GI Note: “DN” denotes nominal pipe diameter.

For new service connections, PE pipes are proposed. Some PNP’s prefer to use galvanized iron (GI) pipes for service connections in the suburban areas because illegal connections are more difficult to make in GI. The disadvantage of GI pipe is that it is prone to corrosion and has a lower design life than PE pipe.

4.6.3 Pressure Class of Pipes The choice of pressure classification for pipe design has a potentially large impact on water supply system costs. In previous projects such as the WSSSP, designers specified the use of PN10 pipe (suitable for 100m working head) for all pipes greater than size DN50, irrespective of estimated working or dynamic pressures in the system. The majority of systems in the small towns operate at maximum working pressures of 40-45m, so PN6 pipe will be adequate in the majority of cases. The supply cost for pipes of different pressure classes is shown in Table 4.3:

Table 4-3: Pipe Supply Costs in US$/m vs Pressure Class uPVC pipe – US$/m PE pipe – US$/m

Pressure Class 100 150 200 100 150 200

PN6 3.50 6.50 11.17 5.21 10.88 17.30 PN8.5 5.12 9.17 14.33 6.48 13.54 21.28 PN10 6.04 11.50 17.83 8.58 16.63 26.17

Note: PN denotes pipe pressure classification

The above figures show that PN10 pipe is generally 1.6-1.8 times the cost of PN6 pipe. As the supply of pipes and fittings greater than DN50 size represents about 28% of the overall construction cost of small town water supply systems38, reduction in pipe pressure class from PN10 to PN6 could provide

38 Analysis of the lowest three tenders for five separate water supply systems in the WSSSP, provided the following

breakdown of costs: general items 4%; supply of pipes and fittings 28%; pipelaying works 12%; intake 8%; water treatment plant structures 20%; service reservoirs 5%; main office building 7%; mechanical works 7%; electrical and control works 4%, and; meters and service connections 7%.



a saving of about 11-12% in overall water supply system costs. The 2004 water sector investment plan estimated future urban water supply investment for 2005-2020 at $267 million, including $103 million for small towns. An 11% cost reduction by using appropriate pressure classes could provide a cost saving of $29 million for the entire investment program or $11million saving in the case of the small towns investment plan.

4.6.4 Distribution and Reticulation Layout In high and medium-density urban areas, it is proposed that replacement distribution mains and new distribution mains will be installed along both sides of asphalt roads, to avoid numerous road crossings, disruption to traffic and high restoration costs. In suburban or low-density areas, distribution mains will be installed along one side of the road only. At the detailed design stage, further studies will be required in each area to ensure that the least cost option is adopted.

Further studies will also be necessary at the detailed design stage to select the optimum layout for reticulation and service connections. Fittings for direct service connections to 100mm dia pipes are very expensive, and in general, smaller reticulation pipes (DN 50-80) should connect service pipelines for a number of households together before connection to a distribution main. Similarly, for households located in narrow streets or alleys, several service connections will be made to reticulation pipes, which in turn connect to distribution mains.

4.6.5 Peaking Factors for Design of Distribution Network The use of appropriate seasonal and peaking factors for water supply system design has a potentially large impact on capital costs. Seasonal and peaking factors can vary markedly depending on the population in the service area and characteristics of the water use pattern. For small systems, theory suggests peaking factors as high as 5 relative to average daily demand, while for large systems in moderate climates, they can be as low as 1-1.2. The use of high seasonal and peaking factors, particularly in small system, can lead to very high investment costs for water supply infrastructure. Appropriate peaking factors (maximum of 2.3 for peak hourly demand on day of maximum demand) are recommended for subproject design. Investment funds would be better spent on expanding the system to supply additional customers living at the extremities of the system and accepting some suppressed demand during the dry season, rather than designing a more expensive water supply system that supplies fewer customers and has excess capacity that is underutilized for most of the year.

4.6.6 Standby Pumps and Generators Standby pumps will be installed in all pumping stations to ensure continuous operation of the system in the event of failure of the duty pump(s). Most of the Project towns are supplied by grid electricity of adequate reliability. However, in some areas, power supplies are unreliable and are subject to frequent outages. In such cases, depending on the frequency and duration of outages, consideration will be given to installing standby diesel generators at treatment plants and at water pumping stations to ensure that continuous power supply is available for basic operation of the water supply system. The feasibility of installing standby generators will be assessed by least cost analysis, taking into account the capital, O&M costs of diesel generation and the cost of lost water production.

4.6.7 Energy Management Energy costs for pumping represent a high proportion of the operating expenses of the PNP’s; the proportion may be even higher in future when subsidies on electricity prices are removed or reduced, and when additional pumping is required to supply areas at the extremities of the system, remote from the treatment plant.

Energy management will be an important element in the PNP’s financial sustainability. Pumps and impellers will be carefully selected to match the required pump duties so that they operate at or close to their maximum efficiency points.



4.7 Appropriate Water Supply Technology

4.7.1 General NSEDP6 calls for the use of appropriate technology, and a gradual shift to greater use of modern technology in Lao PDR. The Project will use technology that is appropriate to the conditions and resources of the provincial and district organizations. In remote locations, simple, robust technology and equipment will be used.

4.7.2 Unstable Power Supplies Unstable power supplies can have a significant influence on the choice of technology for urban water supply systems in Lao PDR. Power supplies in some of the Project towns are not only unreliable, but are subject to severe voltage fluctuations that can damage motors and other electrical components. In such locations, the use of modern, sophisticated electrical components and circuitry should be avoided or kept to a minimum, as they would suffer a high failure rate. All pumping stations and treatment plants should be fitted with protection devices. Plant operators should monitor voltage closely, and if voltage strays outside acceptable ranges, plant and equipment should be shut down or switched to standby diesel power if provided.

4.7.3 Water Treatment Technology The choice of water treatment technology for the small towns depends primarily on the raw water quality together with operator capacity and financial resources to ensure sustainability. Rivers and streams provide the main sources of supply for the majority of small town water supply systems in Lao PDR39. Wet season turbidity of rivers and streams in Lao PDR is moderate to high, and turbidity levels are subject to fluctuations, particularly the small mountain streams and small rivers. Therefore, some form of sedimentation and/or pre-filtration is necessary to reduce suspended solids and turbidity ahead of filtration and disinfection.

The main technology choice for treatment of surface water in Lao PDR lies between slow sand filters and rapid sand filters. Table 4-4 compares the features of the two systems. Slow sand filtration is a biological process using a fine sand bed to develop an active top layer, which kills bacteria and viruses. Slow sand filters require low influent turbidity to avoid blocking and frequent cleaning. For most surface waters in Lao PDR, slow sand filters require sedimentation and pre-filtration – the filters have to be used without coagulation pre-treatment as the floc rapidly clogs the pores in the fine sand. Because of their low hydraulic loading rate, slow sand filters require relatively large areas of land. The filters are cleaned by manually removing the top layer of sand which has to be replaced when the filter depth becomes too shallow. They are relatively labor intensive to operate and maintain. As the re-establishment of the active top layer takes several days after filter cleaning, the plant has to have sufficient capacity to supply the water demand when one or more filters are out of action.

Table 4-4: Comparison between Slow Sand Filters & Rapid Sand Filters Item Slow Sand Filters Rapid Sand Filters

Sand Size 0.15-0.35mm 0.4-1.0mm Loading rates 0.1-0.3m3/m2/hour 5-15m3/m2/hour Process Biological Physical Permissible influent turbidity <10-20NTU; 50 NTU for short periods High

Advantages:

• Reasonably easy and simple to operate; • Does not require skilled operator but

training and monitoring required; • Does not require chemicals; • Produces microbiologically clean water

that does not require disinfection. However, disinfection is still advisable to

• Small land area required • Low labor costs • Able to treat raw water having high

turbidity • Cleaning by backwash takes little time

and the filters can be put back into operation immediately

39 WSD’s Report on Statistics of PNPs for 2006 shows that among 53 water treatment plants in the country, 41

plants (77%) take raw water from rivers, streams or springs and 12 (23%) use groundwater sources.



Item Slow Sand Filters Rapid Sand Filters maintain a chlorine residual in the distribution network;

• Does not require electricity • Reliable

• Often used with coagulants which speed up settling and remove fine particles

Disadvantages:

• Requires cleaning every 2 months for low turbidity water; takes 3-4 days to recover

• Large land area required • Labor intensive • Requires low turbidity raw water;

• Skilled operators required • Greater reliance on disinfection to kill

bacteria and viruses • High capital and operating cost

compared to slow sand filters • Requires electricity • Require good monitoring capacity for

chemical dosing; • Require trained operators for process

control • Require skilled technicians for

maintaining mechanical and electrical equipment

Note: NTU = Nephelometric Turbidity Units (a measure of turbidity)

Rapid sand filters work at much higher rates of flow than slow sand filters (up to 50 times) and rely on physical removal of suspended solids. Although rapid sand filtration reduces microbial populations by removing particles containing bacteria, it is not a biological treatment process and disinfection is vital to kill bacteria. Rapid sand filters require frequent cleaning (usually daily or twice daily) which is achieved by backwashing filters with clean water to re-suspend the sediment. Backwashing is usually rapid and filters are out of commission for only 5-10 minutes. Cleaning and operation can be largely mechanized and air scour is commonly employed to make backwashing more effective. Rapid sand filters do not require low influent turbidities, as they are essentially a physical treatment process. The rapid flow rate through these filters means that rapid sand filters are far smaller than slow sand filters. (filter area for rapid sand filters is about 1/50th of the size of slow sand filters of equal capacity). With the small land requirement, several rapid sand filters can be accommodated in a small area and thus it is easy to maintain capacity to meet demand when filters are being cleaned.

In Lao PDR, most PNPs prefer rapid sand filters to slow sand filters. The following reasons are given: less land area, less outage time for cleaning, lower labor input, greater ability to handle raw water of high or fluctuating turbidity, high cost of replacement sand in some locations, and rapid sand filters represent more modern technology. Among the country’s 41 urban water treatment plants that treat surface waters, only five use slow sand filters, namely in Huoixai40, Phonsavanh and Champhorn, Xam Neua and Phongsaly. The majority of the remaining 36 treatment plants use rapid sand filters. In the small towns that have existing treatment plants, the rapid sand filtration systems use standard, robust designs and similar equipment. The PNPs and operators are familiar with their operation and maintenance.

The choice of treatment technology for the STWSP depends on the circumstances of each small town, particularly the quality of the raw water source and the capacity of the PNP to operate and maintain the plant. Feasibility studies for new water supply systems are often based on very limited water quality data, and consequently raw water turbidity is often uncertain at the feasibility stage. IN such circumstances, the technical feasibility of rapid sand filters is reasonably assured, while the feasibility of slow sand filters is not known until water quality data has been collected over several wet seasons.

Table 4-2 shows recommended treatment systems for various conditions. Generally, slow sand filters are preferred where raw water source has low turbidity and adequate land is available for the plant. Rapid sand filters are preferred for raw water having moderate-high turbidity or where suitable land is scarce due to density of development, topography or high cost.

40 The Bokeo PNP advised that the two-stage slow sand filtration plant in Huoixai was retro-fitted with a chemically

assisted sedimentation tank. The first stage filters were also modified to enable backwashing through a pipeline connected to delivery pipeline of the forward pumping station.



Standardization of treatment processes, equipment and training in a particular province is also a factor that could influence the choice of treatment system. Some level of standardization is also necessary in order to facilitate the training and exchange of water system operators across the country.

To ensure that the selected water treatment system is sustainable, as a precondition for funding approval, the PNP will be required to develop and implement a plan to manage, operate and maintain the proposed water supply system and water treatment plant. The plan will be assessed by the PCU and Project consultants.

Table 4-5: Recommended Water Treatment Systems for STWSP Source Typical Wet Season

Turbidity Comments Recommended System

Protected Spring Low – typically <10 NTU

Small increase in wet season turbidity if spring is protected from surface inflows

Slow sand filters with chlorination, or chlorination only

Lake Low – typically <20 NTU Small increase in wet season turbidity. Need to restrict human and boating activities near intake

Slow sand filters with chlorination

Mountain stream 100-600 NTU Rapid increase in turbidity levels

with rain storm

Sedimentation, prefiltration*, slow sand filtration and chlorination, depending on raw water turbidity and available land, or: Flocculation, sedimentation, rapid sand filtration and chlorination

River 800-1,200 NTU Slow change in turbidity with rain storm

Presedimentation, flocculation, sedimentation, rapid sand filtration and chlorination

Mekong River 1,600-3,000 NTU Little change in turbidity with rain

storm Presedimentation, flocculation, sedimentation, rapid sand filtration and chlorination

Note: 1. Source: Nam Papa Lao engineers’ estimates. Personal communication, 2007. 2. * Alternatively, filtration through natural sand bed in river bank.

4.8 Drainage Design for the Project The proposed drainage improvements are relatively minor (a cost ceiling applies) and, in most cases, will involve: (i) upgrading existing primary and secondary drains in markets or other priority areas of the towns, and; (ii) constructing or upgrading tertiary drains in the villages. Drainage catchments in most cases will be less than 10ha. Design storm return periods proposed for the Project are 5 years for primary drains or important secondary drains in commercial areas. Elsewhere secondary and tertiary drains will be designed for 2-year storm return periods. Designing for more severe events is not justified because the increased costs of physical works, resettlement and compensation, outweigh the benefits arising from less frequent flooding.

Drainage design will use the “Rational Method” for estimating flood discharges and “Manning’s equation” for hydraulic design of channels, box culverts and pipelines.

4.9 Sanitation in the Candidate Towns

4.9.1 Existing Sanitation Systems Three main types of sanitation systems are used for treatment and disposal of wastewater in the Project towns: (i) pour-flush pit latrines (70% of households); (ii) septic tanks (6%), and; (iii) simple dry pit latrines (6%). About 16% of households do not have any toilet facilities and use open ground, rice fields, river banks, local drains, and watercourses for disposal of excreta and wastewater. Coverage of toilets and on-site sanitation systems in the 21 Project towns varies widely, ranging from 21% in Lakhonepheng to 100% in Huoixai. Households without pour-flush toilets are generally poor families that cannot afford the cost of a toilet and wastewater disposal system.



4.9.2 Pour-Flush Pit Latrine The most common type of sanitation system in the towns (and in the country as a whole) is the pour-flush latrine which consists of a squat pan (with water seal) set in a concrete slab over a pit generally 2m deep. The pit is usually supported by 1m diameter concrete rings, and effluent seeps into the surrounding soil through the walls and base of the pit. In the majority of cases, the pit is located outside the house. All types of wastes including excreta, bodily cleaning materials, flushing water (and sometimes sullage) are deposited in the pit. When the pit becomes full, generally after 2-4 years, a new pit is constructed. The old pit may be safely dug out and reused after leaving the contents undisturbed for at least 2 years.

In general, pour-flush latrines provide a satisfactory form of wastewater and sullage disposal in low and medium-density areas because of the natural assimilative capacity of the subsoil systems. They are also the most practical form of wastewater disposal in the small towns because of their simplicity of operation and construction, low construction costs, and the fact that they may be built and maintained by householders with a minimum of external assistance. They require little water (1-4liters) for flushing and do not need to be desludged. A new pit latrine is constructed when the old one becomes full.

In some villages, problems arise because pit latrines are not properly designed or constructed. The most common problems are: (i) pits are located too close to the wet season water table and cause pollution of groundwater (generally they should be at least 2m above the water table and the ground should be built up if necessary); (ii) pits are located close to wells that are used for domestic water supply, resulting in contamination of the wells; (iii) pits are too small because of unfavorable subsoil conditions, resulting in overflows or seepage on the ground surface, or causing the pits to become full in less than 2 years; (iv) new pits are located too close to old pits, resulting in contamination of the old pits, which then cannot be dug out with safety, and; (v) there is inadequate water available for flushing and washing hands.

4.9.3 Septic Tanks Only a few households in the Project towns have septic tanks, mainly because pour-flush latrines perform satisfactorily in the low population density conditions and septic tanks with their higher construction and operating costs are not warranted.

Where septic tanks are used, the effluent is normally discharged to soakaway pits, nearby roadside drains, to soakaway pits, or simply percolates into the ground. Problems with septic tanks arise in some of the towns because the tanks are poorly designed and constructed, and are not cleaned out on a regular basis. As a consequence, they provide very limited treatment and solids are carried over to drains or soakaways, leading to odors, blockages and overflows of sewage from the drains. Septic tanks require desludging about every 3-4 years, necessitating access to a sludge vacuum tanker and septage disposal facility.

4.9.4 Sullage or Grey Water Most households discharge wastewater from kitchens and bathrooms (known as sullage or grey water) to yards, gardens, soakaways or roads. Concentrations of pathogens and bacteria in sullage water are generally much lower than in wastewater from toilets. Discharging sullage to soakaways or pouring sullage onto the ground can be an acceptable means of disposal provided that the soil is not kept continually moist. The soil must have sufficient permeability and area to enable the sullage to percolate away.

Sullage disposal may pose a significant health hazard in some areas if the sullage creates ponds or makes the ground continually moist, thereby concentrating bacteria and viruses and encouraging breeding of flies and mosquitoes. Many households use sullage for irrigating vegetables, which can also pose a significant health hazard if the vegetables are eaten raw.

4.10 Sanitation Options for the Project Objective of Sanitation: The objective of sanitation is to reduce to safe levels: (i) risks of human contact with contaminated wastewater or excrement and; (ii) the occurrence of stagnant water or moist ground which can lead to breeding of mosquitoes or parasites such as helminths. Most small



town communities in Lao PDR cannot afford the cost of modern sewerage and wastewater treatment systems at their current state of economic development, and sanitation development usually follows a series of steps for incremental improvement as follows: (i) on-site pit latrines or septic tanks; (ii) combined drainage systems receiving septic tank effluent and stormwater; (iii) interceptor sewers with basic wastewater treatment, and, (iv) in some cases, separate stormwater and wastewater systems with full wastewater treatment.

Sanitation Options: The choice of the most appropriate technical option for sanitation in the small towns varies from household to household, depending on a range of factors including affordability, population density, household preferences, availability of water supply, ground conditions and the status of existing water and sanitation infrastructure (e.g. existence of municipal drains). Table 4-6 lists a range of acceptable sanitation options for the proposed Project, covering both on-site and off-site systems.

Separation of Grey Water and Sewage: For reasons of economy, separate disposal methods are recommended for sullage and sewage (i.e. wastewater from toilets) where on-site sanitation systems are used. Pit latrines, septic tanks, soakaways or absorption trenches must be substantially larger if the two wastewater streams are combined, treated and disposed on site.

Options for Households Lacking Ample Water Supplies: Simple pit latrines and ventilated improved (VIP) latrines do not require water for flushing and are applicable for households that do not have piped water supplies. VIP latrines have been developed in some parts of Lao PDR through support from various donors. They provide a more hygienic option than simple pit latrines.

Pour-flush Pit Latrines: Pour-flush water sealed pit latrines are the common form of on-site sanitation for the majority of households in the Project towns. They are the preferred on-site sanitation systems for households that have adequate piped water supplies. Separate soakaways are also recommended for safe disposal of grey water from bathrooms, kitchens and laundries or outdoor washing areas.

Options for Poor Households: Under the proposed Project, a sanitation grant will be available for poor households to construct or upgrade their sanitation facilities, irrespective of whether they decide to connect to the PNP piped water supply. Simple pit latrines or VIP latrines would be suitable for poor households that decide not to connect to the PNP system. A suitable low cost sanitation system for poor households connected to the PNP piped water supply would include a yard tap with soakaway and either a pour-flush pit latrine or a VIP latrine. The latter would minimize overall costs to the household, as it would avoid the cost of water for flushing, which may be a significant burden for a poor household.

Septic Tanks: Septic tanks discharging to soakaway pits or municipal drains may provide a suitable sanitation option for densely populated areas, wealthy households, and for public facilities such as markets or schools, provided that vacuum tankers (either within the town or in a nearby town) for desludging and septage disposal facilities are available locally. In areas of high population density, septic tanks and sullage pipes discharging to covered drains may be a suitable sanitation option, provided that the drains convey the wastewater to a safe discharge point. Discharge of septic tank effluent to open drains poses a greater risk of human contact with contaminated wastewater and can lead to ponding if the drain invert is uneven or poorly graded.

Situations that Require Off-site Wastewater Disposal: In some towns, high population densities or adverse soil and geological conditions (such as high water table, heavy clay or rock within 2m of the ground surface) may dictate the need for off-site disposal of wastewater. In such cases: (i) septic tanks discharging to municipal drains; (ii) septic tanks followed by a small-bore sewerage system with treatment in simple waste stabilization ponds, or; (iii) a separate piped sewerage system, may be required. Villages may consider such sanitation systems for funding under the VEI.



Table 4-6: Sanitation Options

Description Advantages/

Disadvantages Typical Details

Estimated Cost $/HH

O&M Cost $/HH/yr

Soakaway for grey water from yard tap

Advantages: Control of helminths, flies and mosquitoes; low cost. Disadvantages: Permeable soil required

0.5m3 of gravel fill Materials only: $5. (Built by householder)

negligible

Soakaway for grey water from kitchen & bathrooms

Advantages: Control of helminths, flies and mosquitoes; low cost. Disadvantages: Permeable soil required.

8m of 50mm dia PVC pipe, 1m3 of gravel fill, 1m2 of impermeable plastic sheet

Materials only: $23. (Built by householder)

negligible

Simple pit latrine

Advantages: Low cost, can be built by householder, needs no water for operation, pit can be dugout and reused. Disadvantages: Fly nuisance unless tight fitting cover over squat hole, bad smell, new pit required when pit is full.

Substructure: 4 precast concrete rings 1.0m diax0.5high; 1.2m dia precast concrete slab and cover. 1 bag of cement. 5.5m2 of roof sheeting.

Materials only: $75 (Built by householder)

$2 (See Note 4)

Ventilated improved pit latrine

Advantages: Low cost, can be built by householder, needs no water for operation, control of flies, absence of smell, pit can be dug out & reused. Disadvantages: Does not control mosquitoes, need to keep interior dark, new pit required when pit is full.

Substructure: 4 precast concrete rings 1.0m diax0.5high; 1.2m dia precast concrete slab and cover. 3.5m long 75mm dia PVC vent pipe.1 bag of cement; 5.5m2 of roof sheeting.


$2 (See Note 4)

Pour-flush pit latrine

Advantages: Low cost, can be built by householder, control of flies and mosquitoes, gives user convenience of W.C., absence of smell, contents of pit not visible, pit can be dug out and reused, toilet can be above pit or offset. Disadvantages: Reliable water supply required, new pit must be constructed when pit is full.

Substructure: 4 precast concrete rings 1.0m diax0.5high; 1.2m dia precast concrete slab; squat plat and water seal; and cover. 3m of 75mm dia PVC sewer pipe. 1 bag of cement. 5.5m2 of roof sheeting.


$10-36 (includes cost of water at 2,500kip/m3) (See Note 4)

Pour-flush septic tank with absorption trench

Advantages: Gives user convenience of W.C. Disadvantages: High cost, reliable/ample piped water required, only suitable for low-medium density housing, regular desludging required, permeable soil required.

Materials: Squat plate and water seal; 5.5m2 roof sheeting; Septic system: 8m of 75dia PVC sewer pipe; twin cell watertight chamber 1.5m3capacity; access holes with covers for sludge removal; absorption trench with gravel fill.

Materials: $26 plus Septic tank system: $267 Total: $293 (Septic tank system built by contractor)

$25-52 (includes cost of water at 2,500kip/m3and desludging at $40 every 3 years)

Pour-flush septic tank discharging to municipal drain

Advantages: Gives user convenience of W.C. Suitable for high density housing, Disadvantages: High cost, reliable/ample piped water required, regular desludging required, municipal drain required – health risks if drain is open.

Materials: Squat plate and water seal; 5.5m2 roof sheeting; Septic system: 12m of 75dia PVC sewer pipe; twin cell watertight chamber 1.5m3capacity; access holes with covers for sludge removal.

Materials: $26 plus Septic tank system: $155 Total: $181 (Septic tank system built by contractor)

$25-50 (includes cost of water at 2,500kip/m3and desludging at $40 every 3 years)

Septic tanks, small bore sewerage, waste stabilization pond treatment system

Advantages: Gives user convenience of W.C., suitable for high density housing. Disadvantages: Very high cost, reliable/ample piped water required, regular desludging of septic tanks and ponds required; Sludge needs careful handling; small bore sewer subject to clogging if septic tank not desludged regularly; operator required for O&M of sewers and waste stabilization ponds; cost recovery essential for O&M.

Materials: Squat plate and water seal; 5.5m2 roof sheeting; Septic and sewerage system: 15m of 75dia PVC sewer pipe; twin cell watertight chamber 1.5m3capacity; access holes with covers for sludge removal. For 10 HH require 200m of 75 dia PVC sewer and 30m3 clay-lined pond with 50m of pipework.

Materials: $26 plus septic tank system: $163 plus sewerage system & pond: $90 Total: $279 (Septic tank system, sewer, pond built by contractor)

$50-77 (includes cost of water, operator, desludging tank and pond every 3 years)

Notes: 1. Sources: A Guide to the Development of On-site Sanitation, WHO. 1992, and TA4875-LAO consultant’s estimates. 2. Based on 6 person household. 3. Assumptions: Project will supply roof sheeting for the toilet superstructure. Householder will supply all other materials and construct the toilet superstructure. 4. Annual cost of pit latrine does not include the cost of building a second pit after 3 to 4 years when original pit is full. 5. Pit latrine and septic tank sizes are based on treatment of toilet wastes only. i.e. grey water disposed to separate soakaway or poured on porous ground in appropriate location and allowed to dry out. 6. W.C. = water closet.



5. THE PROPOSED PROJECT

5.1 Project Impact and Outcome The expected impact of the Project is: improved quality of life of small town residents in Lao PDR and enhanced role of the small towns as economic, market, services, and manufacturing centers for their surrounding rural areas. The Project’s expected outcome is improved access, quality and reliability of water supply and sanitation services in up to 21 small towns throughout the country. Core Appendix 1 contains the Draft Design and Monitoring Framework for the Project.

5.2 Outputs The Project has five integrated outputs, namely: Output 1: strengthened urban water supply sector, including: (a) strengthened sector planning, management, and regulation, and (b) improved PNP sustainability; Output 2: developed or rehabilitated water supply systems; Output 3: improved urban drainage works; Output 4: enhanced community action and participation; and Output 5: improved capacity for project implementation and operation and maintenance of subproject facilities. Output descriptions are given below.

5.3 Output 1: Strengthened Urban Water Supply Sector This output is designed to strengthen the overall water supply sector and improve sector sustainability. It comprises strengthened sector planning, management and regulation, and; improved PNP sustainability.

Output 1.1: Strengthened Sector Planning, Management and Regulation includes institutional strengthening of WSD, WASA, and DPWT and a scholarship program for water supply sector engineers.

Institutional Strengthening of WSD, WASA and DPWT: The institutional strengthening of WSD and WASA will build on previous ADB and NORAD assistance to WSD and WASA provided under the WSSSP and the NCRWSSP41. The Project will provide consultant support over the period 2009-2013, and will assist the two organizations to implement their respective 5-year rolling action plans. Through consultant support and training, the Project will strengthen WSD’s capacity to formulate policy, plan and develop the water supply sector. It will assist WSD to: (i) complete key technical guidelines and standards; (ii) build the capacities of WSD staff to develop, manage, plan and formulate policy for urban water supply; (iii) formulate a human resource development (HRD) strategy for the urban water supply sector, and; (iv) disseminate technical and management guidelines to PNPs, DPWTs, other government agencies and the private sector. The support will also assist WASA to: (i) undertake its core regulatory functions42 over 2009-13; (ii) undertake the PNP tariff review for 2011-2013; (iii) raise awareness of Ministries, provincial governments and PNPs of the objectives and benefits of sector regulation, and; (iv) disseminate regulatory guidelines and procedures to DPWT, other provincial agencies and PNPs. The reduced level of support for WASA compared to that provided under the NCRWSSP recognizes that it should undertake a greater role in performing its core regulatory functions, after almost ten years of capacity development and training.

The Project will also strengthen the capacity of the DPWT in each Project province to plan, develop and manage provincial water supply and sanitation services. The capacity development, in the form of consultant support, workshops and formal training courses, will be provided to staff within DPWT that are responsible for water supply and sanitation, including the concerned DPWT Deputy Director and professional staff in the provincial office of housing and urban planning (OHUP).

Key WSD, WASA and DPWT staff will be active participants in the capacity development and strengthening of PNPs. (Output 1.2). Working with the Project consultants, WSD will assist PNPs to improve their management, planning and technical capacities and develop human resources.

41 Assistance under NCRWSSP is scheduled for completion at end 2008. By that time it is expected that the WSARC

will have approved the basic regulatory guidelines developed by WASA . 42 Including PNP monitoring and preparing annual reports on PNP performance.



WASA’s participation will focus on regulatory requirements, benchmarking, performance indicators, and promoting tariff adjustments in line with WASA tariff review recommendations.

Scholarship Program for Water Supply Sector Engineers: The Scholarship Program aims to increase the number of qualified engineering graduates entering the water supply sector in Lao PDR and upgrade the skills of engineers already working in the water supply sector. Shortage of qualified and dedicated water supply and environmental engineers constrains sector sustainability, particularly in the provinces where skilled personnel are scarce. The scholarships will target engineering students who have successfully completed at least 3 years of a 5-year engineering bachelor course, and professionals who are already practising in the water sector, having existing diplomas or degrees in civil engineering, building or construction. The scholarships will be available for the final 2-years of bachelor degree courses in environmental engineering43 or water supply engineering at either Lao National University or Vientiane Institute of Technology. To be eligible for the scholarships, candidates must be nominated by DHUP, DPWT, PNP or a private water supply provider, with commitment by both parties to employment with the organization in a water sector role after completing the bachelor degree. Candidates must also pass the concerned institution’s entrance examination for the final 2 years of the bachelor course. With consultant support, the WSD will: (i) develop detailed eligibility criteria and procedures for the scholarship program, and; (ii) administer and implement the scholarship program over 2010-2013. The scholarship program will form an integral part of the human resources development strategy for the sector to be developed by WSD.

Output 1.2: Improved PNP Sustainability (IPS): The Project will assist all PNPs that adopt WASA recommended tariffs to improve their organizational performance and sustainability. Consultants and WSD will assist the participating PNPs to: (i) develop and implement immediate action plans and corporate plans; (ii) prepare an organizational HRD strategy and build the capacities of PNP staff at all levels; (iii) strengthen the PNPs’ management and financial systems; (iv) corporatize under the Enterprise Law, 200544, and; (v) establish a Memorandum of Agreement (MOA) between the provincial governor and PNP covering working arrangements, financial and operational performance targets, delegation of authority and tariff setting45.

The IPS will focus on developing PNP capacity in business management, financial management and efficient operation and maintenance. This will assist PNPs to effectively manage increased revenues generated through the WASA tariff adjustments, and demonstrate to customers that service levels are improving following the tariff adjustments.

The IPS program will commence with the first group of PNPs that are accepted into the Project and will be extended to other PNPs progressively. The consultants, WSD and WASA will raise awareness of the PNP’s commercial role, tariff setting and regulation through a series of workshops and meetings with PNPs and provincial governments. The Project consultants will assist each PNP to: (a) undertake an initial assessment of its organizational performance and needs; (b) identify constraints to sustainable operation; (c) reach consensus on the necessary actions and reforms; (d) formulate and implement a time-bound action plan to rapidly improve PNP performance and sustainability, and; (e) prepare a rolling 3-year corporate plan46 incorporating the specific action plan.

The action plan and corporate plan will be developed through a participatory process over several months with the PNP and concerned government agencies to ensure ownership. The plans will provide a roadmap to transform each PNP into a more efficient, autonomous, water supply company with specific mandate, objectives and targets and more commercial focus. Immediate actions to improve performance may include restructuring (e.g. separating non-core activities) and improving efficiency through such means as immediate technical improvements (e.g. energy management,

43 Environmental engineering courses cover the fields of water supply, wastewater, drainage, sanitation and solid

waste management. 44 This will be carried out in close collaboration with the BPO which is leading GOL’s SOE reform program and is

involved in the drafting of Prime Minister’s Instructive Orders for implementing the Enterprise Law, 2005. 45 The NCRWSSP has piloted a similar MOA. 46 Key contents of the Corporate Plan include: (i) mission statement and corporate objectives; (ii) standards,

performance indicators and targets; (iii) tariffs; (iv) market analysis; (v) PNP management and organization; (vi) action plan and detailed activities; (vii) 3-year financial forecast, and; (viii) capital investment program.



pressure management, improved water treatment process control to optimize chemical use), raising coverage through connection policy initiatives, reducing non-revenue water, improving revenue collection efficiency, implementing an arrears collection strategy and adjusting tariffs to WASA recommended levels.

The Project consultants will provide technical and management support and training to the Project PNPs for up to three years (within the Project period 2009-13) to improve the PNPs’ performance in such areas as: business management; management information systems; financial planning, financial management, accounting and billing; performance indicators and benchmarking; human resources development; engineering planning, management, operation and maintenance; asset management, and; records systems. The consultants will provide system-specific capacity development and training for PNP provincial and district staff in system operation and maintenance. It will prepare O&M manuals, guidelines, procedures and simple wall charts (in Lao and English) for managers and operators, tailored to each specific system and facility. It will also help the PNP to develop short and medium-term water supply investment plans47 for each of its water supply systems. The Project will procure computer hardware, improved billing and accounting systems and laboratory water testing equipment for the Project PNPs. (For details of equipment, refer to Supplementary Appendix C).

To ensure that the institutional strengthening of WSD, WASA and DPWT is efficient, it will consist of short term, intermittent inputs by international specialists in key areas and longer term inputs by domestic consultants, supplemented by formal training courses, workshops and targeted study tours within the Asian region. Local accountants and Lao water industry professionals will be recruited to provide on-the-job training and support. National training institutions such as the Water Technology Training Center in Vientiane will supplement the consultant support for engineers, financial managers and technicians. Regional workshops will be conducted to facilitate sharing of experiences, lessons learned and networking between PNPs.

The Project’s sector strengthening activities will be reviewed regularly by the consultant, ADB and concerned development partners and re-scoped if necessary depending on the effectiveness of the support and developments in the sector.

5.4 Output 2 – Water Supply Development or Rehabilitation

5.4.1 Water Supply Development The Water Supply Development aims to develop safe, affordable, reliable PNP piped water supply systems for the core areas of up to 18 Project towns. It will include: the development of: (i) surface, spring or groundwater sources; (ii) raw water transmission; (iii) water treatment facilities, including small water testing laboratory; (iv) distribution and reticulation pipework; (v) service reservoirs; (vi) individual metered service connections, and; (vii) an office/workshop/store for the PNP branch. Equipment for O&M of the water supply systems will be procured.

Households that apply to connect during the construction period will not be required to pay any up-front charges for connections or meters, but the cost of these items will form part of the subproject capital cost and will be recovered through the water tariff. This connection policy is being piloted under the NCRWSSP and will be refined for the STWSP. The policy will assist poor and low income groups to participate in the piped water supply system, encourage new connections and enhance PNP financial sustainability. Marketing and awareness campaigns will inform communities about the Project’s connections policies and the benefits of connecting to PNP piped water supply.

The construction contractor will install distribution pipelines, reticulation pipework (<DN63) to cover the entire service area48, and install the service connections and meters during the construction period. Commercial and institutional customers will pay for connections at the full cost of labor and materials. The contractor will purchase sufficient materials for service connections to all consumers that apply to connect during the construction period. If the final number of connections is less than this number, surplus materials will be stored for later installation by the BNP when required. After 47 The investment plans will comprise costed year-by-year plans for staged development of the water supply system

infrastructure to meet forecast water demand. 48 In those locations where roads and houses exist at the time of construction.



construction has been completed, it is proposed that the PNP would continue to provide connections for the poor free of any upfront charges, and would charge other new customers for the cost of the connection, including labor and materials.

Households that receive connections free of up-front charges will be required to enter an agreement to pay for a minimum of 5m3 of PNP piped water per month even if they use less than this quantity. The minimum monthly fee is designed to; (i) reduce potential for households to take advantage of the free connection and use only minimal quantities of water, and; (ii) provide disincentive for households to use alternative sources of supply in preference to PNP piped water.

The Project design will incorporate a number of cost containment measures to ensure as many Project towns as possible receive piped water supply systems. To ensure that the water supply investment is efficient, the subprojects will focus on the most densely populated areas in the core villages. Preferred schemes will be determined by least cost analyses and will use appropriate engineering design criteria. Water treatment plants will be designed for forecast Y2025 water demands, and appropriate levels of service and standards will be adopted to avoid overinvestment. Access road construction will be minimized; and walking tracks will be provided to intakes in remote areas. A basic, low-cost branch PNP office, store and workshop will be provided. Where protected spring sources are developed, consideration will be given to eliminating mechanical and electrical plant, and backwashing filters using water under pressure taken from the raw water main. Design criteria and service levels aim to optimize capital and long-term operation and maintenance costs.

5.4.2 Water Supply Rehabilitation The Water Supply Rehabilitation includes minor improvements to existing water supply systems to enhance water supply reliability or water quality. For the three candidate subprojects nominated for rehabilitation, the scope of works is expected to include the construction of a raw water reservoir to supplement dry season flows (Huoixai), development of a supplementary source of supply to remedy dry season water shortages (Vangvieng), water treatment plant improvements to enhance water quality (Vangvieng) and relocation of raw water intake to avoid a polluted water source. (Saravane). System expansion, capacity augmentation and rehabilitation works resulting from lack of operation and maintenance are not eligible for funding under the Project. The maximum amount of funding available for rehabilitation works in the three candidate towns is limited to $150,000 per town (base construction cost).

The rehabilitation subprojects will include a small amount of O&M equipment, but will not be eligible for the Improved Drainage or VEI. The three towns nominated for rehabilitation works are receiving external assistance for drainage improvements and sanitation, health and hygiene awareness through the ADB-funded Small Towns Development Sector Project (STDP), ADB Loan No 1994-LAO (SF), which is being implemented in the period 2005-2009. The three STDP subprojects include urban roads and village improvements in selected villages, together with environmental sanitation and hygiene awareness for all urban villages.49

5.5 Output 3 – Improved Drainage This Output will improve public drainage in the core villages. The drainage works will include the construction or improvement of primary drains, secondary drains, roadside drains, culverts and outlets, to relieve minor flooding and ponding and reduce health risks associated with standing polluted water.

49 The STDP subprojects in Huoixai, Saravan and Vangvieng include urban roadside drainage associated with the

urban road improvements, village improvements and sanitation and hygiene awareness. Drainage canals and large pipe drains are also included in the Vangvieng and Saravan subprojects. The village improvements, chosen by the villages, include mainly village access roads, associated simple roadside drains and village administration office. The village improvements do not include on-site sanitation facilities, as coverage of on-site sanitation facilities in the towns is high (e.g. 100% in Huoixai). The village improvements cover some urban villages and some villages outside the main urban area; coverage is as follows: Vangvieng 5 out of 10-11 villages; Saravan 5 out of 8 villages; Huoixai 6 out of 14-15 villages. However, the environmental, sanitation and hygiene awareness covers all urban villages in the three towns.



The Project will also procure equipment for management, O&M of drainage in the towns, including office furniture, computer and software, workshop tools and minor construction tools and equipment. (Refer to Supplementary Appendix C for details).

The drainage improvements will be selected by district agencies and communities, and will complement the drainage and sanitation works under the Village Environmental Improvements (Output 4). Priority for investment in drains will be given to primary, secondary and roadside drains in commercial centers or densely populated areas to ensure that the investment is efficient, and that the works are economically viable. Investment in public drainage and sanitation will be limited to $80,000 per town (base construction cost).

5.6 Output 4: Community Action and Participation

5.6.1 General Approach The Community Action and Participation (CAP) is designed to improve environmental health at the household and village level. It comprises complementary communication and infrastructure activities that: (i) increase acceptance of water supply systems; (ii) enhance the benefits of water supplies through improved household sanitation, village-level environmental improvements and community health awareness, and; (iii) promote participatory and consultative processes for all residents of core villages including women, all ethnic groups and poor households.

5.6.2 Community Information and Participation Program (CIPP) The CIPP aims to maximize community participation and ownership through (i) information sharing; (ii) consultation, ensuring a two-way flow of information between the PIU and communities; (iii) collaboration, involving shared decision making between the PIU and communities; and (iv) empowering people at grass roots level by transferring control for decisions and actions to communities.

The objectives of CIPP include:

• Improve community representation in village development • Motivate households for piped water supply connection • Motivate households to install/improve their toilet facilities • Facilitate communities to organize themselves for local improvements • Help communities to plan, design, operate, supervise, maintain local infrastructure in coordination

and partnership with local authorities and agencies • Improve knowledge of village residents in basic health, hygiene and sanitation.

Information and consultation activities will include: (i) project orientation workshops for districts and villagers (ii) KAP survey on current hygiene practices and a baseline survey in the core villages; (iii) review of effective communication channels and strategies used by district, provincial, and international donor projects; (iv) preparation of a communication strategy for the effective dissemination of information on relevant water, sanitation and hygiene themes; (v) consultation on infrastructure siting and design, infrastructure needs, and land acquisition; (vi) capacity development in community consultation, communication and gender sensitivity at the district and village level; (vii) review of existing hygiene and sanitation promotion methods and materials in Lao PDR (viii) capacity development in health and hygiene promotion at district and village levels; (ix) production and distribution of technical guidelines, and health promotion materials for use by communities, mass organizations, schools, and government agencies.

Collaboration and empowerment activities under the CIPP program will include: (i) preparing a participation plan identifying main activities and responsibilities for different agencies at each stage of subproject implementation; (ii) scoping and agreeing the roles and responsibilities of village WATSAN committees and any subcommittees; (iii) facilitating the representation of women, poor and ethnic minority groups; (iv) establishing processes and procedures for grant applications; (v) training and capacity development of village committees; (vi) facilitating linkages with district authorities; (vii) monitoring and evaluation of participation.



5.6.3 Village Environmental Improvements (VEI) The VEI will provide funds and technical assistance for communities in the villages to improve household sanitation facilities and undertake priority small-scale community improvements such as drainage, footpaths and community toilets. The rationale of the VEI is to strengthen the benefits from STWSP investments in water supply systems through demand-driven, community-managed improvements in household sanitation and village environmental conditions.

Households will be encouraged to construct or upgrade household toilets. Village WATSAN committees will focus on the designated poor households in each core village; identify which of these households are among those without any or proper sanitary facilities; and, inform them of the Project provisions for financial and technical assistance to construct hygienic latrines. Poor households that connect to the PNP piped system will receive a grant of up to $100 per household to enable them to construct or upgrade their toilet, latrine, yard tap and soakaway.50 51 For poor households that decide not to connect to the piped water supply system, the grant may be applied towards the cost of a toilet, simple pit latrine or ventilated improved pit latrine and soakaway.

Grants will be paid in installments, including an advance payment for purchase of materials, so that poor households are not out of pocket. Construction of latrines, yard taps and soakaways by householders is acceptable. Non-poor households will also be encouraged to upgrade their household toilets through increased awareness and available technical information.

The Project also supports small-scale community improvements in the core villages in the subproject, such as works to construct or upgrade footpaths with drainage, to improve drainage conditions within the residential areas or around village institutions (e.g., the wat or village meeting hall) or to provide toilet facilities for groups of houses or village institutions (e.g. schools). Communal septic tanks and soakaways for tap stands are other possibilities. The VEI community improvements will be implemented through a combination of financial contributions and community resource mobilization in the core villages. The WATSAN will take the lead to organize the community to identify priorities and preferences, and to select, plan, design and implement the improvements. The PIU will provide technical guidance on a range of household sanitation facilities available, including toilet, pit latrine, septic tank, and other works such as drainage, footpath design and construction.

The STWSP will contribute up to 80% of the cost of VEI community improvements; for each subproject, a VEI fund will be established equal to US$10 per person times the population of the core villages. This contribution will provided as a grant through the PIU. The provincial/district governments will contribute 10% and the village will contribute at least 10% in the form of labor, materials and/or cash. Each village will have to enter into an agreement with OPWT for operation and maintenance of the VEI before any funds are released.

To be eligible for the VEI, it is necessary that (i) core villages accept overall responsibility for implementing and maintaining the improvements; (ii) village residents agree to make contributions in cash and/or in kind towards the capital costs of the improvements; and, (ii) the process to select the specific village improvements is participatory, transparent and provides equitable benefits for all ethnic and social groups in the village.

5.6.4 Coordination and Implementation of CAP The CAP will add value to the physical works by maximizing community participation, integrating health and hygiene awareness, and coordinating the project components at the village level. This will be achieved by: (i) creating a team within each PIU, including a water supply engineer, sanitation

50 The latrines will be designed to accept toilet wastes only. Separate soakaways are proposed for grey water from

kitchen and bathroom. 51 A grant amount of $90 has been established to cover materials for the substructure and roofing for a water seal pit

latrine serving a household of 6 people. It covers the cost of the following materials: 4 precast concrete rings 1.0m diax0.5high; 1.2m dia precast concrete slab; squat plat and water seal, 3m of 75mm dia PVC sewer pipe for an offset latrine; 1 bag of cement, and; 5.5m2 of roof sheeting. The householder will be responsible for: (i) supplying materials for walls and for the roof framing, and; (ii) constructing the facility, with assistance from neighbors where necessary. An additional grant of $10 is available for constructing a yard tap, soakaway and small bore pipework between the PNP meter and the yard tap.



officer, full-time Community Coordinator and part time representatives from district health office Lao Women’s Union, and district education office as required; and (ii) broadening the function and membership of existing village committees to include responsibility for water and sanitation, and including strong female and poor representation and reflecting the ethnic composition of the village.

The Project consultant will assist the PIUs and village WATSANs to implement the CAP at the community level, by providing technical and management support, training and education materials. The PIUs and WATSANs will be responsible for mobilizing participation, awareness, health and hygiene campaigns and village improvements activities. The STWSP Capacity Development Program (Output 5) will include formal and on-the-job training for the PIUs and WATSANs on aspects of the CAP and social and environmental safeguards.

In each core village, the village chief will initiate a participatory process to establish the WATSAN, which will be chaired and managed by the village chief or deputy chief. Other members will be elected by village residents and will include representatives of (i) the mass organizations, Lao Women’s Union (LWU), Lao Front for National Reconstruction (LFNC) and Youth Union; and: (ii) other volunteers from the village. The WATSAN is expected to include 2-3 women; the ethnicity of members will, to the extent possible, reflect the people living in the village; and, members of poor households will be encouraged to participate.

The WATSAN will take the lead role in the CIPP and VEI at the village level with support from the PIU; and, will collaborate with the PIU and district authorities on health and hygiene promotion activities. The WATSAN may decide to establish finance and maintenance sub-committees for the VEI, to (i) increase participation of villagers in the CAP process and (ii) strengthen management of the VEI and village financial and maintenance obligations.

5.7 Output 5: Improved Capacity for Project Implementation and O&M This Output comprises project implementation assistance (PIA); capacity development programs (CDP); and incremental administration support (IAS).

5.7.1 Project Implementation Assistance The Project Implementation Assistance will provide consulting services to assist the PCU and each PIU to implement the Project. The PCU and senior PNP staff with previous Project implementation experience will also provide training for the new PIUs prior to and during implementation.

The PIA consultants will provide technical and management support, capacity development and training to the PCU and PIUs throughout the implementation stage in such areas as: (i) project planning, project management and coordination; (ii) setting up project management, accounting, auditing and reporting systems; (iii) developing project administration procedures and manuals; (iv) feasibility studies; (v) procurement; detailed design of the Project components and preparation of bid documents; (vi) construction supervision of water supply systems and sanitation and drainage works; (vii) bid evaluation, and contract management; (viii) resettlement planning; (ix) social and environmental assessments; (x) environmental management and monitoring; (xi) financial and economic analyses; (xii) benefit monitoring and evaluation; (xiii) project reporting, accounting, budgeting and disbursements; and (xiv) community participation, awareness and development activities.

The PIA will also pilot an appropriate PNP-private sector cooperation model for water supply to extension areas outside the PNPs designated service area in one selected town. The support will include awareness raising and technical support for small-scale independent providers (SSIPs) operating in the selected town.

The PIA consultants will also provide training and support to the PIU and WATSANs for implementing the CAP. The consultants will assist the PIUs to: (i) establish and train WATSANs in each core village52; (ii) prepare the participation plan for the subproject and for each core village; (iii) establish management and administration systems; (iv) prepare standard formats and templates for accounting

52 WATSANs already operate in core villages of some of the towns



and record keeping; (v) develop awareness materials and programs, and; (vi) formulate eligibility criteria for the sanitation program for poor households.

The PNP will work with PIUs and WATSANs and with the PIA consultant to develop a strategy, marketing campaigns and awareness materials for establishing the PNP customer base. The PNP will also ensure that accounts and billing systems are ready as soon as the new water supply system becomes operational.

During the Project implementation, the PCU and PIA consultants will conduct a series of Project orientation workshops in Vientiane, at regional centers (e.g. Luangprabang, Kaysone) and in each town to explain the project scope, objectives, implementation schedule, implementation arrangements, eligibility criteria, ADB and Government procedures to be followed during implementation, and the roles of various stakeholders. The workshops will include concerned central, provincial and district government agencies, mass organizations, private sector representatives, village leaders and communities. Resettlement training and workshops for provincial and district officials will also be conducted during the Project orientation. Project orientation will be repeated as towns become eligible to join the Project. During implementation, opportunities for joint workshops and seminars which promote information sharing between project towns will be explored.

5.7.2 Capacity development Programs General: The Capacity development Programs (CDP) will help to: (i) develop the capacity of institutions in the towns to manage, operate and maintain the completed water supply and sanitation services, and; (ii) define the roles and responsibilities of PNPs, local government and the communities for managing, operating and maintaining the water and sanitation facilities.

The CDP will provide support in the form of consultants and training to the BNP, the district OPWT, WATSANs and village communities. The Project’s capacity development and training activities for the BNPs and OPWTs will focus on the essential training for the branch staff responsible for managing, operating and maintaining the specific infrastructure system and equipment provided by the subproject. Key staff of the future BNP and of the existing OPWT will be members of the project PIU, and will receive on the job and formal training from the PIA consultants throughout the project implementation. Capacity development for WATSANs and village communities will focus on the VEI and on-site water supply and sanitation facilities.

In consultation with local agencies and village WATSANs, the consultants will develop guidelines and system-specific manuals (in both Lao and English language) for operating and maintaining the water supply, drainage and sanitation facilities in the towns.

The capacity development program will be delivered by foreign and domestic specialists in the PIA consultants, by National trainers from Water Technical Training Center (WTTC) and Lao institutions, and by provincial PNP and DPWT staff.

Capacity development for BNP: At commencement of subproject implementation, the PIA consultants will assist the PNP training coordinator to develop a detailed CDP tailored to the needs of the BNP. The CDP will complement the PNP’s own training program.

BNP staff will receive training in water utility management, budgeting and planning, water supply engineering, asset management, pipe installation and repair, operation and maintenance, water treatment plant operation and control, pump operation and maintenance, asset management, water supply connections, record keeping, meter reading and customer relations. BNP personnel nominated to operate and maintain the Project completed facilities will receive appropriate hands on training at existing PNP facilities by PNP staff and the PIA consultants. Specific formal training provided at the WTTC in Vientiane will complement the PIA consultants training and the PNP training plan if necessary. Other BNP staff that will need to be recruited prior to commissioning of the Project facilities will be trained by the PNP training coordinator and senior staff at existing PNP facilities in accounting, meter reading, billing and collection.

The Project will also procure essential O&M equipment, including O&M tools and minor construction equipment, workshop tools, computer hardware and software, and water laboratory test equipment.



The training coordinator of the provincial PNP will be responsible for ensuring that proposed BNP staff members are adequately experienced or trained so that the Project facilities can be operated and maintained in a sustainable manner immediately following commissioning to an established customer base.

Capacity development for OPWT: At commencement of subproject implementation, the PIA consultants will assist the head of OPWT to develop a detailed CDP for the OPWT. The CDP will be tailored to the organization’s specific needs, and will complement the OPWT’s own training program.

Training for OPWT staff will focus on: (i) planning, design, and construction of drainage and sanitation systems; (ii) sanitation regulations; (iii) computer and English language skills; (iv) mobilizing communities for maintenance of drains and sanitation systems; (v) managing private sector maintenance contracts, and; (vi) environmental management53.The CDP for OPWT will include on-the-job and formal training, technical and management support by consultants. The Project will also procure essential O&M equipment, including tractor or tuk-tuk for maintenance, basic tools, minor construction equipment, computer hardware and software.

Capacity development for WATSANs and Communities: The PIA consultants and PIUs will provide capacity development for WATSANs and village communities to enhance their capacities to: (i) maintain the VEI, and; (ii) operate and maintain their on-site water supply and sanitation systems. BNP and OPWT staff will also participate in these capacity development activities. Each village will enter into an agreement with the OPWT for operation and maintenance of the VEI.

5.7.3 Incremental Administration Support Incremental administration support includes PCU operating expenses (support staff, domestic airfares, regional transport costs, and office running costs for implementation and training activities); and provision of vehicles, office and computer equipment for the PCU office. For the PIUs, it will include provision of vehicles, office and computer equipment for each PIU office and travel and allowances to attend workshops, meetings and training events. It also includes the costs of resettlement monitoring and evaluation, and financial auditing of PCU and PIU accounts, which will be undertaken by specialized domestic or international contractors and independent consultants engaged by the PCU.

5.8 Other Aspects of the Project Design

5.8.1 Operation and Maintenance of Project Facilities The BNP will be responsible for managing, operating and maintaining the new or rehabilitated water supply systems. The PNP in the provincial capital will provide ongoing technical and managerial support to the BNP following commissioning of the new water supply system. It will process/print water bills in the provincial office, and coordinate BNP staff training. The BNP will manage and administer any private sector contractors in accordance with concession or outsourcing agreements.

The OPWT will be responsible for managing the new or improved drains and sanitation systems. Maintenance of public drains and sanitation systems will be carried out by private contractors under OPWT supervision.

To facilitate operation and maintenance, the subproject area will be divided into a number of separate zones or service areas for water supply and for sanitation. A BNP “caretaker” will be responsible for the O&M of the water supply system and customer liaison in each zone (of about 1,000 customers). Similarly, an OPWT supervisor will have responsibility for managing the drainage and sanitation facilities within a designated service area and will have a duty of care for that area.

Individual villages will be responsible for operating and maintaining the VEI, with support and supervision by OPWT. Each village will enter into an agreement with the OPWT for operation and maintenance of the VEI prior to its implementation. The provincial DPWT will provide technical and managerial support to the OPWT, and will also coordinate OPWT staff training.

53 Priority topics raised by OPWT staff during the TA4875-LAO Phase 1 surveys, May 2007.



The WATSANs will provide an ongoing link and point of contact between the villages, the BNP and OPWT following completion of the subproject. They will monitor the performance of water and sanitation facilities in the villages, report any problems to the village heads and to the responsible BNP or OPWT supervisor, and coordinate the operation and maintenance of the VEI with BNP and OPWT.

Budget for O&M of drainage and sanitation facilities will be provided by the provincial governments.

5.8.2 Source Protection Based on Phase 1 investigations54, most of the Project towns will obtain raw water for their piped water supply systems from rivers, streams or springs which are open to contamination from development and activities in the upstream catchments. While the quality of the existing raw water sources in general is suitable for urban water supply after full treatment, there is potential for water quality to degrade over time as a result of increased urbanization, industrial activity, agricultural development, animal production and deforestation in the upstream catchments. To ensure that water quality is maintained, both localized and wider measures are required to protect the sources used for the urban water supplies. Local measures are required to ensure that the actual water source is not at risk from contamination in its immediate environment. Large-scale measures are required to ensure that valuable water sources are not lost because of contamination of the water body from point and non-point sources of pollution some distance away from the drinking-water source.

In accordance with the Water and Water Resources Law (No 02-96/NA, September 1996) and the associated Implementation Decree (No 204/PM, October 2001), the provincial governments will be required to issue regulations to protect the quality of the water sources. The PIA Consultants will assist the DPWT and Department of Agriculture and Forests55 to prepare the regulations, which will be submitted with the Subproject Appraisal Report. It is recommended that the regulations include the following minimum requirements:

(i) establish a local protection zone immediately at and upstream of the intake, 1km long (measured along the river or stream) and 500m wide on either side of the river or stream, within which only non-polluting activities are permitted (e.g. non-intensive rice, crop or tree cultivation). Within this protection zone no development or activities with potential to pollute the water source will be allowed, including: (a) building; (b) human habitation; (c) intensive agriculture using fertilizers or pesticides; (d) cutting trees; (e) excavation, land clearance or leveling that creates erosion; (f) animal production or grazing; (g) industry; (h) extraction of rock, gravel, sand or minerals; (i) cemeteries; (j) discharge of wastewater; (k) dumping of garbage, chemicals, mine tailings, oil or petroleum products, animal carcasses, or; (l) release of any other harmful materials.

(ii) establish a catchment-wide protection zone for the catchment upstream of the local protection zone, with the following measures: (a) limit the application rates of inorganic fertilizers and pesticides in areas where intensive agriculture is practiced; (b) ban slash and burn agriculture or other large-scale clearing; (c) ban large-scale logging; (d) control erosion from such activities as construction work, logging, mining of minerals and extraction of sand or gravel; (e) where intensive animal production is carried out, require farmers to collect and treat animal waste by simple means (e.g. waste stabilization ponds) or to contain the wastes on their properties; (f) require farmers and others to dispose of dead animals by burial or burning; (g) require industries, mines, factories, abattoirs and hospitals to treat effluent and discharges to meet stringent effluent standards; (h) require urban centers and villages to treat wastewater to appropriate standards prior to discharge to the environment, and; (i) prevent the release of any other harmful substances within the catchment.

(iii) establish penalties for individuals and organizations violating the regulations for water source protection.

54 TA4875-LAO Phase 1 surveys and data sheets, May-June 2007. 55 According to the Implementation Decree for the Water and Water Resources Law m(204/PM, 2001), MPWT in

coordination with MAF will determine the reserved water and water resources areas.



(iv) assign responsibility to the relevant agencies for regular inspection, monitoring, reporting and enforcement of penalties relating to water source protection.

In cases where polluting developments or activities are already established in the local protection zone or catchment-wide protection zone, it may be necessary to close the polluting activity with payment of appropriate compensation, or to implement mitigating measures. For example, if villages exist within the local protection zone, suitable mitigating measures may include provision of proper on-site sanitation facilities for 100% of households, or collection and diversion of wastewater to an outfall downstream of the intake. In the wider catchment, adequate standards of effluent quality should be established and enforced.

Awareness campaigns conducted by WATSANs and PNPs during Project implementation will also make communities aware of the need to protect water sources, the extent of protection zones and the activities permitted within them.

5.8.3 Sanitation The Project includes a number of measures to mitigate the impacts of the relatively small additional quantities of wastewater and sullage, and to improve the existing sanitation conditions. These include: (i) improved drainage and sanitation conditions in the villages through the village environmental improvements; (ii) behavioral changes in sanitation practices and raised awareness of sanitation and health through the community health and awareness program; (iii) improvements to public sanitation facilities and drainage; (iv) enhanced capacity of OPWT and communities to manage drainage and sanitation through capacity development and supply of O&M equipment.

5.8.4 Modified Sanitation Regulations To enhance the effectiveness of the Project, the district governments will be required to issue modified sanitation regulations56. The PIA consultants will assist the DPWT to prepare the regulations, which will be submitted with the Subproject Appraisal Report. The modified regulations will require all households, businesses and institutions to: (i) install or upgrade household pit latrines to prescribed standards in low density areas; (ii) install or upgrade septic systems to prescribed standards in high and medium density areas; (iii) register their sanitation facilities with OPWT; (iii) make connections from sullage pipes or septic tanks to community drains in areas that are unsuitable for soakaways; (iv) desludge septic tanks or construct new pit latrines before they overflow, and; (v) provide proper soakaways to dispose of septic tank effluent and sullage in areas that have inadequate drainage.

In addition, the following measures are proposed (i) as a condition of building approval, all new buildings should have properly constructed sanitation facilities that receive all domestic wastewater including sullage; (ii) all new industry should provide wastewater treatment and drainage facilities to ensure compliance with the Government’s wastewater standards; (iii) existing industry should comply with Government’s wastewater standards within a period of three years, or cease operation; and (v) defecation in streets and public places should be illegal once sanitary facilities have been established in an urban area. The public awareness and information program will advise the prospective beneficiaries of the new regulatory requirements, the necessity of compliance, and the assistance available to comply through the sanitation scheme for poor households.

5.8.5 Standards for Pit Latrines and Septic Tanks: All of the Project towns use local standards for design and construction of pit latrines and septic tanks. These facilities provide an important function in reducing pollution loadings and preventing solids from causing groundwater pollution or entering soakaways or drains, where they can cause odors and blockages, which in turn lead to overflows or seepage of raw effluent and associated health risks.

The PIA consultants will also assist DPWT and OPWT to develop appropriate standards and model designs for pit latrines, soakaways and septic tank systems during the detailed design stage of the Project. These standards and model designs will be disseminated to local contractors and

56 The sanitation regulations would be based on the regulations prepared for the NCRWSSP.



householders to assist them with sanitation construction. AIl pit latrines and septic tanks funded by the Project will be inspected, approved and registered by the relevant local authority, irrespective of whether they are constructed by local contractors or householders.

5.8.6 Private Sector Participation in Water Supply System Operation Small-scale independent providers (SSIPs) operate piped water supply systems in six of the 21 Project towns, namely: Nonghed, Kasy, Thateng, Songkhone, Champassack and Xaysetha57. The feasibility study for the Songkhone subproject reviewed the options for two private systems that operate in the core villages. The two systems are small and provide low service levels in terms of water quality (untreated river or pond water), pressure and reliability. Piped water supply coverage in the two villages is 32% and 53% respectively. During the preparation for NCRWSSP, the consultants examined options for a similar SSIP operating in Hoon.

Studies of the three SSIPs were conducted to assess options that could enable the SSIPs to continue to operate following commissioning of the new water supply systems. The studies concluded that it would not be feasible for the SSIPs to continue to operate within the PNP’s service area because the SSIPs are unable to compete with the PNPs in terms of service levels, price and coverage in the small towns. The SSIP systems provide low service levels, their tariffs are similar to or higher than PNP tariffs, because they lack of economies of scale and must cover all costs and make a profit, unlike PNPs which receive grant funding for water supply system development and subsidies from provincial governments for operation and maintenance. In all three cases, the studies concluded that the PNP should take over the SSIP’s service area, pay appropriate compensation to the SSIP for loss of business or assets, and offer other business or employment opportunities to the SSIP’s staff.

Nevertheless, there are opportunities in most towns for SSIPs to develop and operate piped water supply systems in areas outside the PNP’s service area58. The proposed Project will pilot a model for public-private partnership (PPP) which will entail the SSIP (or village cooperative) purchasing bulk water from the PNP to supply extension areas, rural towns or villages outside the PNP service area, under a 20-25-year concession contract. The proposed contract would be similar to the “GRET” model and would be subject to competitive tendering processes.

In such cases, the SSIP could construct a small reservoir at the extremity of the PNP service area, together with a pumping station, small-bore transmission main and distribution network to supply piped water to outlying extension areas and villages which otherwise would not be serviced by the PNP. The bulk supply would be metered at the reservoir site and paid for by the SSIP at an agreed price. SSIP would charge its customers for the treated water at a tariff that recovers all of its capital and operating costs plus profit. The water supply system would be constructed to PNP standards so that it may be taken over by the PNP at the end of the concession contract, or, alternatively, the concession contract could be re-bid at that time. This arrangement has potential to benefit all parties by: (i) providing the SSIP with a viable business opportunity; (ii) increasing the utilization of the PNP’s new water supply system, thereby enhancing PNP revenue and financial performance, and; (iii) providing the unserviced villages with a clean, reliable water supply. It is recommended that such arrangements for private-public-partnerships be investigated at the commencement of the subproject feasibility studies, and implemented if shown to be feasible.

5.8.7 Strong Community Participation and Health Focus A feature of the Project is its increased strategic focus on viability and sustainability of the urban water supply investments through complementary community participation, health and hygiene activities. In particular, the PIU, district health and education offices, women’s union and village water and sanitation committees will be fully involved with responsibility for planning, designing and implementing the CAP, with support by consultants. The strategic importance of this approach is clear, as the Government’s sector policy allocates responsibility for health and hygiene promotion in small towns to the district offices of health. Within CIPP, community health and awareness support will also focus on attitudinal aspects of community hygiene behavior rather than focusing on physical

57 Source: TA4875-LAO. Phase 1 Data Sheets, May-July 2007. 58 For example, in Songkhone district, a SSIP could purchase bulk treated water from the PNP at Lahanam village

and supply 4-5 large villages located on the bank of Xe Banghieng River about 5km from Lahanam.



construction of pit latrines. The Project also extends and enhances previous community participation activities through a deliberate integration of the CAP with both a comprehensive community participation plan and communications strategy, together with project technical design and construction activities.

5.8.8 Pipe Installation in Road Right-of-Way Based on the water supply designs for the sample subprojects, it is expected that over 85% of the pipelines for new water supply systems will be located in road rights-of-way (ROW), thereby minimizing land acquisition and compensation costs. However different requirements apply in urban areas and non-urban areas as described below. While pipelines may be laid within ROWs in urban areas, they are not permitted to be installed within the designated “road limits” outside urban areas, except in special circumstances. Complications also arise in some Project towns where houses or other structures encroach into the ROW.

The Road Law sets out the principles and regulations for public roads, and divides public roads in Lao PDR into six classes. Table 5-1 shows the road classes and the corresponding road limits which are defined as the total width of the road, including road surface, shoulder, footpath, drainage ditch and the reserved zone. No development or activity is permitted within the reserved zone for the road, except with the specific permission of the Road Authority59.

Table 5-1: Lao PDR Road Classes and Width of Road Limits Class Class of Road Width of Road Limit (m)

I National road 25m each side of road centreline (50m total width) II Provincial road 15m each side of road centreline(30m total width) III District road 10m each side of road centreline (20m total width) IV Rural road 5m each side of road centreline (10m total width) V Urban road In compliance with Urban Master Plan VI Special road In compliance with technical standard specifically imposed on each road

According to the Road Law, water supply pipelines must be laid outside the road limit60 of National, Provincial, District or Rural Roads. For example, in Viengphouka District where the water supply pipeline is laid along the route of National Road R3, the pipeline must be laid no closer than 25m to the road centerline, notwithstanding that the road formation is only 20m wide. i.e. the water supply pipeline must be located at least 15m from the edge of the road.

Different regulations apply to roads within urban areas, irrespective of whether they are National, Provincial or District Roads. The Urban Masterplan and the Rules and Regulations of Town Planning61 govern the planning, design and construction of urban roads. There are five types of urban roads, as shown in Table 5-2. The said regulations define the road right-of-way (ROW) for each class of urban road. The ROW area serves as a guide for road construction and road widening. Within the ROW, no construction is permitted except buildings serving for traffic, or public facilities such as footpath, electricity, water supply, drainage, telecommunications facilities, decorative features and advertisements.

59 The concerned Road Authorities are: MPWT, DPWT and OPWT for National, Provincial and District/Rural roads

respectively. 60 Although the concerned DPWT representative in Luangnamtha advised that the water supply pipeline could be

installed in the road shoulder of Road R3 in Viengphoukha district, senior staff of the Planning and Technical Division of MPWT advised that the pipeline must be laid outside the road limit.

61 Agreement from the Minister on the Rules and Regulations of Town Planning, No 209, 5 February, 1996. MPWT.



Table 5-2: Rights-of-Way for Urban Roads

No Type Total

Carriageway width (m)

Median Width (m)

Total Footpath Width (m) ROW Width (m)

1 Arterial Road 2x10.5 1.0 2x4.0 30.0

2 Sub-arterial Road 2x6.5 1.0 2x3.0 20.0

3 Collector Road 10.0 - 2x2.5 15.0

4 Distributor Road 8.0 - 2x2.0 12.0

5 Small Residential Roads 3.0-4.5 - 2x0.5-2x0.75 4.0-6.0

For arterial, sub-arterial and collector roads, services may be installed in the 2.5-4.0m wide footpath (or road shoulder) in the following order from the road edge: drainage, tree planting, water supply pipeline, electricity, telecommunication wires. The drain must not be closer to the road edge than 0.3m and telecommunications must not be closer than 0.5m from the outer edge. For distributor roads having only 2.0m wide footpaths, the facilities may be divided between the two sides of the road, with drainage, tree planting, electricity and telecommunications on one side and drainage, tree planting and water supply pipeline on the other.

In the case of Viengphoukha, the Urban Masterplan defines the ROW width of National Road R3 as 18.0m where the road passes through the urban area. The width of footpaths is not specified on the Urban Masterplan, but they scale as about 2.7m. Although the water supply pipeline could be laid within the footpath, in fact the proposed pipeline location for the feasibility design is immediately outside the ROW. In this location, there would be no impact on adjoining properties which are at least 2-3m from the ROW.

In some Project towns houses or other structures illegally encroach into the ROW along the water supply pipeline route. In such cases, it would not be practicable to install the pipeline inside the houses or structures, as unhindered access to the pipeline is required for future operation, maintenance or repairs. The optimum solution depends on specific circumstances. If no space remains within the ROW to install the pipeline, in most cases the best solution would involve: (i) either remove part or all of the house or structure within the ROW, install the pipeline in the ROW, and pay appropriate compensation to the householder, or; (ii) divert the pipeline outside the ROW. In the latter case the pipeline could be installed in the adjacent road with permission of the concerned road authority, or in another location which minimizes or avoids land acquisition and compensation problems.



6. COST ESTIMATES & FINANCING PLAN

6.1 Cost Estimates As the investments will be decided during Project implementation, the Project cost estimates are based on the general approach, subproject designs, design criteria and unit costs for the feasibility studies prepared for the three sample subprojects.

The Project cost is estimated at $34.0 million equivalent, including taxes and duties of about $3.6 million equivalent. A summary of the cost estimates is given in Table 6-1.

Table 6-1: Project Cost Estimate in $000s

Output Total Cost $000's %

1 Strengthened Urban Water Supply Sector 1.1 Strengthened Sector Planning, Management & Regulation 1,180 3.5 1.2 Improved PNP Sustainability 2,120 6.2 1.3 Scholarships for Water Supply Engineers 100 0.3 Total for Sector Strengthening 3,400 10.0 2 Water Supply Development or Rehabilitation

2.1 Water Supply Development 14,832 43.6 2.2 Water Supply Rehabilitation (3 systems) 514 1.5 Total for Water Supply Development or Rehabilitation 15,346 45.1 3 Improved Drainage 1,035 3.0 4 Community Action & Participation

4.1 Community Information & Participation Program 731 2.1 4.2 Village Environmental Improvements 1,502 4.4 Total for Community Action & Participation 2,233 6.6 5 Improved Capacity for Project Implementation and O&M

5.1 Project Implementation Assistance 3,888 11.4 5.2 Capacity Development for O&M 552 1.6 5.3 Survey & investigations Contracts 611 1.8 5.4 Incremental Administration-PMU 473 1.4 5.5 Incremental Administration-PIU 816 2.4 5.6 Training & Workshops 344 1.0 Total Improved Capacity for Project Implementation and O&M 6,684 19.7 TOTAL ESTIMATED BASE COST 28,698 84.4 6 Contingencies

6.1 Physical 2,366 7.0 6.2 Price 1,823 5.4 Total Contingencies 4,189 12.3 7 Interest and Service Charges 1,114 3.3 TOTAL ESTIMATED PROJECT COST 34,000 100.0

Notes: 1. In August 2007 prices. 2. Physical Contingencies 10% on civil works and equipment and 5% on consulting services. 3. Price contingencies based on 5.1-5.2% for local costs; 1.2% for foreign costs 4. Includes taxes and duties estimated at $3.6 million. 5. Interest and service charges during construction at 6.4% per annum of subsidiary loan to be re-lent to the PNP. 6. Strengthened sector planning, management and regulation includes about $800,000 for support to WSD/DPWT

and $380,000 for support to WASA.



6.2 Financing Plan Sources of funds for the Project are expected to include grants and loans from ADB and other international agencies. It is proposed that: (i) part of the grant or loan funds will be provided to the MPWT to pay for the cost of consulting services and incremental administration; (ii) the Ministry of Finance (MOF) will onlend 30% of the costs of the water supply scheme to the PNP as subsidiary loan in domestic currency and carry an interest rate of 6.4% per annum, with repayment over 25 years including a 6-year grace period. Interest during construction will form part of the loan; (iii) the remaining 70% of the cost of the water supply scheme will be provided to PNP as grant, and; (iv) the balance of the ADB and other funds will be provided to the provincial government as grant to cover the cost of other works.

Table 6-2: Preliminary Project Financing Plan Source Total Cost (US$ ‘000) Percent

Asian Development Bank 20,000 58.8% Other International Agencies 10,200 30.0%

Government 3,800 11.2% Total 34,000 100.0%

Note: Government contributions estimated at $3.8million to cover $3.6 million for taxes and duties and $0.2 million for land acquisition and compensation.



7. IMPLEMENTATION ARRANGEMENTS

7.1 Project Management

7.1.1 General Approach The proposed project implementation and project management arrangements will generally follow those adopted for the NCRWSSP, with minor modifications to improve efficiency and Project sustainability. Figure 2 shows the proposed organization structure for Project Implementation

Figure 2 - Project Organization Structure

Government of Lao PDR Asian Development Bank

Provincial Project Steering

Committee (PPSC)

Project Steering Committee

(PSC)

Project Implementation Unit (PIU)PIU Manager

Technical Community Action & Participation

Administration & Finance

Village Committees(WATSANs)

Project Coordination Unit (PCU)

Project Implementation ConsultantsSector Stengthening Consultants

Village Communities

PNP, OPWT, OOH, OOE, other district

agencies, LWU and other mass organizations

Ministry of Public Works and Transport (MPWT)

Executing Agency

Dept. of Housing & Urban Planning (DHUP)

DPWT Implementing Agency

District CoordinationDistrict Governor

Water Supply Division (WSD)

Water Supply Authority (WASA)

WASA Regulatory Committee

Provincial Nam Papa (PNP)

7.1.2 Executing Agency The MPWT will be the Executing Agency for the Project, and the provincial DPWTs will be the implementing agencies. A national PSC62 will be formed to oversee the Project, give overall direction and provide policy guidance. The PSC will be chaired by the vice minister of MPWT. The full PSC will include representatives from MPWT including DHUP and PCU, the MOF, Ministry of Foreign Affairs (MOFA), Department of Public Administration and Civil Service of the Prime Minister’s Office (DPACS), the Committee for Planning and Investment (CPI), Ministry of Health (MOH), Water Resources and Environmental Agency (WREA) and Bank of Lao PDR. A core group comprising the MPWT, PCU and PIA consultants will meet quarterly, and ad hoc meetings will be held as required

62 It is expected that this would be the same committee as that established for the NCRWSSP and the ADB- funded

Small Towns Development Project.



between the core group and concerned agencies to resolve problems. The full PSC will meet annually to review progress, discuss policy issues and resolve any issues arising.

7.1.3 Project Coordination Unit A PCU63 will be established within the DHUP of MPWT. It will be responsible for overall planning and coordination of project implementation, including programming, budgeting, financial planning, accounting and reporting. It will manage subproject preparation, detailed design, procurement of works and goods except for Output 3, in consultation with PIUs and with the assistance of the PIA consultants. The PCU will recruit and manage the PIA consultants, who will assist the PCU and PIUs with project implementation and undertake capacity development activities.

The PCU will be required to coordinate the STWSP and NCRWSSP concurrently. Accordingly, staffing levels will need to be increased to support the new project. Proposed additional staff are shown in Table 4-1. The additional professional staff should have appropriate project experience and should be proficient in Lao and English languages. It is likely that the staff would be resourced from the previous WSSSP, WSD or recruited independently. Other DHUP staff may assist the PCU on a part-time basis.

Table 7-1: Proposed Composition of PCU Function Project Coordination Unit

Existing Numbers of Staff64

Proposed Additional Staff for STWSP65

Total Requirements for 2 Implementation

Projects

PCU Director 1 1 PCU Deputy Directors 1 1 2 Senior Engineer - 1 1 Procurement Specialist - 1 1 Safeguards Specialist 1 1 Chief Accountant 1 1 Accountant/Bookkeeper 1 2 3 Office Manager/Administrator

1 1

Secretary 1 1 2 Office / Accounts Assistant 1 1 Driver 3 2 5 Total 11 8 19

7.1.4 Project Implementation Unit PIUs in towns that will receive new water supply systems will be established under the DPWT in each Project province. In the three towns with existing PNP water supply systems requiring minor rehabilitation, the PIU will be established under the PNP.

The PIU will comprise representatives from the concerned PNP and other concerned provincial and district-level agencies, with expertise in project management, construction coordination, contract administration, water supply, drainage and sanitary engineering, environmental management, accounting, and community health, awareness and participation. With assistance from the consultants and PCU, the PIU will be responsible for day-to-day coordination and supervision of project

63 It is expected that the PCU which currently manages the NCRWSSP implementation and STWSP technical

assistance will be expanded to undertake STWSP implementation, building on the experience and capacity developed on the previous projects.

64 The DHUP support persons for STWSP project preparation are not included in the above table. 65 The additional staff will augment the existing PCU and allow coordination of two implementation projects.



implementation in the Project province and district. It will participate in project planning, feasibility studies, design, and bid evaluation for the province’s subproject; coordinate the activities of consultants and contractors in the province; oversee construction activities; manage resettlement; coordinate capacity development activities; report to the PCU and provincial project steering committee (PPSC) on progress, and; implement designated subproject works.

The PIU will manage community actions and awareness activities and work closely with village communities; it will have representatives from district agencies including the LWU, district health office, and as needed, the education office. In each subproject core village, a WATSAN will be established from the existing village committee to mobilize local communities and work with the PIU and the PIA consultants in implementing village improvements and awareness activities. The PIU will manage procurement for Outputs 3 and 4.

It is expected that the Director or Deputy Director of the PNP will be the Project Manager of the PIU. The Project Manager will be expected to have relevant managerial and technical experience and good English speaking and writing skills. The PIU will be an integrated unit of three main teams: (i) administration, finance and accounting; (ii) technical and; (iii) community action. Table 7-1 shows its proposed composition and the qualification and experience requirements for each team member.

The PIU will comprise personnel from a range of provincial and district agencies working under an experienced Project Manager to ensure integration of all project components and enhance participation of the communities. The management, engineering and technical members of the PIU will include permanent staff of the PNP and OPWT who will, after project completion, join the PNP Branch office to manage, operate and maintain the completed system. During project implementation the District authorities, PNP and DPWT will identify additional personnel for future water supply scheme operation and administration for training at existing PNP water schemes. These personnel will be trained ready to participate in commissioning of the new scheme and become full time Branch Nam Papa (BNP) employees.

A community coordinator within the PIU will be responsible for liaison on resettlement and compensation aspects and will be a representative in the District Resettlement Committee. Staff from the Women’s Union and other mass organizations, as well as division of health, will be an integral part of the PIU and be involved in the CAP developed by the project. It is recommended that one person from the PIU (or other appropriate person involved in the community aspects of the Project) be transferred to the BNP on completion of the subproject to take on the role of Community Liaison Officer thus ensuring that the experience gained in community consultation and awareness raising is retained within the BNP. A representative from the Office of Education will join the PIU as required for school hygiene awareness and sanitation promotion activities.

Table 7-2: Proposed Composition of PIU Function PIU

Staff Nos.

% of Time during

Subproject Implementation

Recommended Qualification & Experience

Suggested Role After Subproject Completion

Project Manager

1 100% Professional engineer > 10 years experience in WS engineering, project management. Trained in basic English, computer use, report writing, ADB procurement and project accounting

Provincial PNP (or Manager Branch BNP)

Deputy Project Manager

1 100% Professional engineer with > 5 years experience in WS engineering or O&M. Trained in basic English, computer skills and report writing.

Manager or Deputy Manager Branch NP

Water Supply Officer

1 100% Professional engineer or technical officer with > 5 years experience in design and construction supervision and quality assurance of engineering projects. Trained in basic English, computer skills and report writing.

Deputy Manager or Operations Manger – BNP

Sanitation Officer

1 100% Professional engineer or technical officer with > 5 years experience in design, construction supervision, or O&M of drainage and sanitation systems. Trained in basic English, computer

OPWT Sanitation Officer



Function PIU Staff Nos.

% of Time during

Subproject Implementation

Recommended Qualification & Experience

Suggested Role After Subproject Completion

skills and report writing. Water Supply Technical Officer

1 100% High school certificate. Experienced technician / tradesman / operator. Computer and English skills preferred

BNP Operations Manager

Accountant 1 100% Diploma in accounting and finance. Experience in project or company accounting, budgeting, financial planning. Skilled in computer use. Trained in basic English skills and ADB procurement

Chief Accountant - BNP

Community Coordinator

1 100% Previous experience in community participation and resettlement, good interpersonal, communications and team skills. English and computer skills preferred..

Community liaison

Women’s Union Representative

1 75% Experience in community participation, and awareness campaigns

LWU

District Health Officer

1 50% From Office of Health with experience in health, hygiene and appropriate sanitation promotion and awareness campaigns.

OOH

Secretary 1 100% High school certificate preferably with computer skills. Some office administration experience preferred

Secretary to Manager - BNP

Total 11 Note: Different composition would apply to PIUs for minor water supply rehabilitation works. See Feasibility Study for Huoixai Subproject for example.

7.1.5 Water and Sanitation Units (WATSAN) In each subproject core village, a WATSAN unit will be established to mobilize village communities and work with the PIU and PIA consultants in implementing the CAP. The WATSAN will consist of members of the existing village committee (chief and/or deputy chief of village, and representatives of the Lao Women’s Union, Youth Union, Lao National Front for Construction) plus volunteer representatives from the poor, village women and minority ethnic groups as appropriate. It is expected that 2 to 3 committee members would be women.

The WATSANs will receive training from the PIA consultants and the PIU in the project scope and benefits, community planning and participation, health and sanitation awareness, operation and maintenance of drains and sanitation systems, and the approach for implementing the community activities. The main responsibilities of the WATSANs are to: (i) coordinate subproject activities at the village level; (ii) assist the PIU to implement the CAP; (iii) mobilize village communities; (iv) keep the villagers informed about the Project, including the opportunities available to them through the Project, and assist villagers to participate; (v) help to provide health & hygiene education; (vi) identify poor households that will benefit from the pro-poor sanitation grant and assist them to improve their sanitation facilities, and; (vii) assist the PIU to monitor the CAP program.

7.1.6 Provincial Project Steering Committee A Provincial Project Steering Committee (PPSC) will be established, or maintained in the case that a relevant PPSC already exists, in each participating Project province to coordinate provincial and district agencies and make key decisions on behalf of the provincial government. The PPSC will provide policy guidance, monitor progress, approve key documents, ensure timely release of counterpart funds and resources for the subproject, and appoint members of the PIU. The PPSC will be chaired by the concerned provincial Vice Governor and will have representatives of the DPWT; DOF; Department of Planning and Investment (DPI); provincial Water Resources and Environmental Agency (WREA); PNP; District Governor and PIU Manager. Representatives from Department of Health; OPWT; Lao Women’s Union and other concerned provincial and district agencies will be invited to attend as required. The committee will meet as required, but at least every 6 months.



At the district level, the district governor or vice governor will oversee the project, monitor progress, review quality of the work, coordinate the subproject with the PIU and local communities, and report on progress to the PPSC. It is proposed that the district governor would appoint a district coordinator to coordinate between the government, consultants, PIU and communities. PIUs are often slow to establish in the district towns during the feasibility and design stages, as there is little work for them to do. The district coordinator would be a permanent contact in the district town, for all subproject related matters both prior to and during subproject implementation.

7.2 Equipment for Project Implementation Table 7-3 lists the equipment that will be provided to the PCU and PIU to assist in subproject implementation. This equipment will be handed over to the BNP and OPWT following completion of subproject construction.

Table 7-3: Equipment for Project Implementation

Item No. Item

For PCU, Consult-

ants

For 13 PIUs: new

WS systems

For 3 PIUs: rehab. works

Total

No No No No 1 1 tonne pickup truck 3 4 0 7 2 Motor bike 8 26 0 34 3 Set of office furniture for up to 10 people including

desks, chairs, meeting table and chairs, cabinets, shelves, reception furniture

2 13 3 18

4 Personal computer and printer (including 1 A3 printer) for management, administration, accounting and engineering

6 39 3 48

5 Laptop for presentations, training, field and office work

1 13 0 14

6 Standard software programs such as MS Office 2 13 3 18

7 Specialized software programs such as MS Project, AUTOCAD

1 13 3 17

8 Photocopier A3 1 13 0 14 9 Fax, binding machine and other minor office

equipment 1 13 3 17

10 Set of media equipment for capacity building and CAP program, including DVD player, television, LCD projector, loud speaker system, video camera, digital still camera

1 13 0 14

11 Handheld Global Positioning System 3 0 0 3 12 Noise Level Meter 2 0 0 2

Notes: 1. 1 tonne pickup trucks to be transferred to PNPs following completion of the subproject. 2. Specialized software (MS Office, AUTOCAD) to be transferred to PNP following completion of the subproject. 3. Other PIU equipment and furniture to be transferred to BNP following completion of the subproject. 4. Pickups procured for southern region PNPs only. Other PNPs have pickups from previous projects.

7.3 Implementation Period The Project is a sector investment project and will be implemented over a five year period from 2009 to 2013. The order in which subprojects are implemented will be determined by agreement between the GOL and ADB, depending on: (i) readiness of the concerned provincial and district governments to implement the subprojects, and comply with the agreed eligibility criteria, and; (ii) geographical grouping of the subprojects to minimize costs and maximize implementation efficiency.



In theory, subprojects could be implemented as soon as they are ready. However, for reasons of cost, efficiency, and expediency, it is expected that they will be prepared and implemented in groups of 3-6 subprojects.

7.4 Procurement Goods, works and services financed under the loan will be procured in accordance with ADB’s Procurement Guidelines (February 2007, as amended from time to time) following the ADB’s Guidelines for Procurement.

International Competitive Bidding (ICB) procedures will be used for major civil works contracts estimated to cost over $1.0 million, and for supply contracts valued over $500,000. Procurement of civil works valued at less than $1.0 million equivalent will be undertaken through national competitive bidding (NCB).

Shopping procedures will be followed for materials and equipment packages or works estimated to cost less than $100,000 equivalent. Local procurement procedures will be used for the small village level civil works and supply contracts, and for awareness activities and equipment under the CAP. To the extent possible, for local procurement, quotations will be invited from at least three suppliers or contractors.

All consultants to be financed from the proceeds of the loan or grant will be selected in accordance with ADB’s Guidelines on the Use of Consultants (February 2007, as amended from time to time). The main consulting services will be hired through a firm of international consultants in association with international and national consultants, using quality-and cost-based selection (QCBS).

The PCU will carry out all procurement for Outputs 1, 2 and 5. The PIU in each province will be responsible for procurement under Outputs 3 and 4. Installation of water meters and service connections will be carried out by the construction contractor under the main construction contract.

Table 7-4 shows the proposed procurement packages for the Project. For reasons of cost-effectiveness, efficiency, standardization and quality assurance, the PCU will procure pickup vehicles, flatbed trucks, motor bikes and laboratory equipment for water testing under four separate contracts. The vehicles or equipment under each contract will be delivered in batches at times to suit the overall Project implementation schedule.

7.5 Consulting Services

7.5.1 General Consultants whose services are provided under Bank financing will be selected and engaged in accordance with the Bank’s Guidelines on the Use of Consultants. The Project consulting services will be provided under two consulting packages, by associations of international and domestic consulting firms. The two consulting packages are for: (i) project implementation assistance (PIA), and; (ii) sector strengthening.

A total of 1,141 person-months of consulting services (181 person-months international and 960 person-months domestic) will be required to support the Project. To ensure that all Project Outputs are properly integrated and coordinated, the consulting services will be managed by a single Team Leader/Project Manager reporting to the PCU. Monthly coordination meetings will be held between the PCU, WSD, WASA and the consultants to ensure proper coordination of the Project components and to inform all parties of the activities of other development partners in the water sector.

7.5.2 PIA Consultants – Package 1 The project implementation assistance (PIA) consultants will provide the services of the Team Leader, will be responsible for managing the overall consulting services and will also provide consulting services for project implementation assistance and capacity development for O&M. (Output 5). They will assist the central PCU, PIUs and village WATSANs to implement the Project in about 16 towns and 11 provinces. This package of consulting will comprise an estimated 106 person-months of international and 735 person-months of domestic consultants.



The PIA consultants will assist the PCU and PIUs to undertake project management, engineering investigations and surveys, feasibility studies, design and construction supervision of water supply systems, contract administration, drainage and sanitation improvements, resettlement, environmental management and monitoring, community planning, health awareness support program, and village environmental improvements.

The PIA consultants will engage specialist subcontractors for: (i) groundwater surveys as necessary including drilling and pump tests; (ii) topographical surveys for feasibility studies and design; (iii) water quality testing for feasibility, design and monitoring during construction; (iv) socio-economic surveys; (v) geotechnical investigations and soils testing for feasibility studies and design, and; (vi) UXO survey and clearance. The subcontracts for groundwater surveys, water quality sampling and testing and UXO survey and clearance will be included in the main consultancy contract as provisional cost items and will be subject to competitive bidding during Project implementation.

The PIA consultant’s Team Leader will supervise the consultants for the CAP activities (Output 4), however funded, to ensure integration of all CAP activities with the infrastructure construction. To minimize costs, the PIA consultants will be based in the PCU office in Vientiane, and will have representatives stationed in each province to work with PIUs and PNPs during the project construction stage.

The capacity development program (CDP) will provide capacity development for the branch Nam Papas (BNPs) and district offices of public works and transport (OPWT) to improve their capacities to manage urban infrastructure and services in the Project towns. It will also provide support to village water and sanitation units (WATSANs) to enhance their capacities to operate and maintain village infrastructure and their on-site water and sanitation facilities.

7.5.3 Sector Strengthening Consultants – Package 2 The sector strengthening consultants will strengthen sector planning, regulation and management. The services will cover: (i) institutional strengthening of WSD, WASA, and each provincial DPWT and; (ii) improving PNP sustainability, and; (iii) a scholarship program for water supply engineers. This package will require an estimated 75 person-months of international and 225 person-months of domestic consultants.

While the Team Leader will be responsible for overall management and coordination of the consulting services, the Water Supply Management Expert for Package 2 will be responsible for: (i) planning, coordinating, scheduling and managing day-to-day activities and reporting on the sector strengthening; (ii) managing, scheduling and coordinating consulting personnel involved in the sector strengthening activities, and; (ii) monitoring and reporting frequently to ADB and other partners on developments in the sector.

The Water Supply Management Expert will be responsible for the successful execution of activities and delivery of Output 1, and will report to the Team Leader. The sector strengthening consultants will have a base in the PCU offices, but are also expected to spend at least 65% of their allocated time working with the PNPs in the Project provinces.

The sector strengthening consultants will be required to: (i) monitor ongoing developments in the water sector, such as drafting of the Water Law, implementation of the Enterprise Law, GOL’s SOE reform program, activities of WASA and the WSARC, and; (ii) keep the Team Leader, ADB and concerned development partners informed of such developments or activities as they occur. The sector strengthening consultant’s regular progress reports will include not only a report on activities, outputs and disbursements, but also an assessment of the effectiveness of capacity development against measurable performance indicators and a status report on developments and activities in the urban water sector. GOL, ADB and concerned development partners will review the sector strengthening consulting services periodically and may require the services to be re-scoped from time-to-time, depending on the effectiveness of the capacity development and developments in the sector. The Package 2 consultants will not be permitted to participate in activities that are inconsistent with WASA’s regulatory role or GOL’s policy direction for WASA.



Table 7-4: Proposed Procurement Packages

Ref Contract Description Number of Contracts

Cost Estimate

per Contract $

Aggregated Total Cost Estimate $

Mode of Procurement

Responsible Agency Comments

1 Supply and delivery of 8 No pickup vehicles for PCU, PIUs, consultants 1 168,000 168,000 Shopping PCU 1 contract with phased delivery

2 Supply and delivery of 13 No 1 tonne flatbed trucks for BNPs 1 182,000 182,000 Shopping PCU 1 contract with phased delivery

3 Supply and delivery of 34 No motor bikes for PCU, PIUs and consultant's site staff 1 30,600 30,600 Shopping PCU 1 contract with phased delivery

4 Supply and delivery of laboratory equipment for water quality testing for BNPs and PNPs (24 packages)

1 223,200 223,200 Shopping PCU 1 contract with phased delivery

5 Office renovation, office equipment and furniture for PCU, WSD, WASA, PIUs and consultants. 51 5000-15000 180,000 Shopping PCU, PIUs

Three separate local contracts for each PIU and PCU covering office renovations, furniture supply and equipment supply

6 New water supply systems (including small bore reticulation and service connections) and O&M equipment

13 517,000-2,023,000 13,636,000 ICB PCU One contract for each new WS system subproject

7 Minor rehabilitation works for existing water supply systems and O&M equipment 3 150,000 450,000 NCB PCU One contract for each rehabilitation WS subproject

8 Drainage improvements and O&M equipment 13 50,000-80,000 976,000 NCB PIU One contract for each subproject that includes drainage

9 Equipment, materials and media events for Community Actions and Participation About 500 500-2,000 731,000 Shopping PIU Several small local contracts for each of about 130

villages or groups of villages

10 Materials and small civil contracts for Village Environmental Improvements. About 80 5,000-

27,000 1,502,000 Shopping/ NCB PIU PIU local contracts for materials supply and/or civil

works covering about 130 villages

11 Consulting services for project implementation assistance and capacity development for O&M 1 4,439,200 4,439,200 QCBS PCU Covers consulting personnel, per diems, transport,

support staff (plus surveys and investigations).

12 Surveys and investigations contracts About 40 1,500-30,000 611,100 Shopping/

NCB PCU To be included in PIA consultant's contract as provisional sum.

13 Consulting services for strengthening of urban water supply sector 1 2,433,000 2,433,000 QCBS PCU Covers consulting personnel, per diems, transport,

support staff.

14 Training courses and trainers fees for PCU, WSD, WASA, DPWT, PNP, BNP About 100 500-20,000 140,000 Shopping PCU Various training courses with Lao and regional training

institutions and centers and fees for National trainers.

15 Concession contracts or service contracts for water supply O&M. As required 100,000 As required NCB PCU Provisional only

TOTAL 26,002,100 ICB = international competitive bidding; NCB = national competitive bidding; O&M = operation and maintenance; PCU = project coordination unit; PIA = project implementation assistance; PIU = project implementation unit; QCBS = quality and cost based selection; WS = water supply.



7.6 Disbursement Arrangements Payment of eligible expenditures from the proceeds of the loan and grant will be made in accordance with ADB’s Loan Disbursement Handbook (January 2001). To ensure the timely release of loan and grant proceeds and counterpart funds and expedite project implementation, the Government will, immediately upon loan and grant effectiveness, open and maintain a project imprest account at Bank of Lao for disbursement of eligible expenditure. MOF will be responsible for establishing, managing, replenishing, and liquidating the account. In addition, the PCU and each PIU will set up a second-generation imprest account (SGIA) in dollars with a commercial bank acceptable to ADB and other co-financiers. 66

The initial amount to be allocated to the imprest account will be based on estimated expenditures for the first 6 months of project implementation, to be prepared by the PCU and each PIU, and up to $500,000. The amount to be deposited into each SGIA will be based on the first 6 months of the projected expenditure of the PCU or PIU, but will not exceed $25,000. The project imprest account and SGIAs will be established, managed, replenished, and liquidated in accordance with ADB’s Loan Disbursement Handbook (January2001) as amended from time to time, and detailed arrangements agreed upon between the recipient and ADB. ADB’s statement of expenditure (SOE) procedures may be used for reimbursing eligible expenditures and liquidating of advances to the imprest account. The maximum payment for any individual items using SOE is $20,000 equivalent. 67

7.7 Accounting, Auditing, and Reporting Each PIU will prepare quarterly project progress reports in a short standardized format acceptable to all financiers and submit them to the PCU for consolidation and reporting to the PSC, ADB, and other co-financiers. The reports will be in such form and detail satisfactory to ADB and other co-financiers. Each PNP will prepare its annual financial statements, including the (i) balance sheet, (ii) income statement, and (iii) cash flow statement. The PCU will also submit to ADB, within 3 months of the physical completion of the Project, a project completion report that will cover the details of project implementation, costs, and project evaluation activities at that time, and other information requested by ADB. The report will highlight the development impacts achieved by the Project, including an evaluation of resettlement activities and conditions of the affected people after resettlement.

The project/subproject accounts, including the imprest account, SOE, and the financial statements of the PNPs will be audited annually by auditors acceptable to ADB and other co-financiers. The PCU and PIUs will prepare the required information for audit, including information on resettlement implementation, in accordance with project auditing requirements of the Government, ADB, and other co-financiers. Audited statements of project/subproject accounts and financial statements of PNPs, together with the report of the auditor, will be submitted to ADB through the PCU within 6 months of the close of the fiscal year.

7.8 Project Performance Monitoring and Evaluation MPWT will ensure that a comprehensive program for project performance monitoring and evaluation (PPME) acceptable to ADB and other co-financiers is carried out during implementation and subsequent operation to (i) examine the Project’s technical performance; (ii) evaluate the delivery of the planned facilities; (iii) assess the achievement of the Project’s objectives; and (iv) measure the Project’s social, economic, financial, and institutional impacts. A set of PPME indicators will be developed at the start of the Project based on the project framework in Appendix 1 by PCU and PIUs with the consultants support and in consultation with the local communities. The Socioeconomic data will be disaggregated by gender and by ethnic group when possible. PIUs will be responsible for carrying out the PPME activities, including pre-project and post-project physical and socioeconomic surveys, data collection and analysis. Each PIU will establish a PPME baseline based on the pre-project surveys and data. Annual PPME reports will be prepared by each PIU, and consolidated by the PCU for submission to ADB. An external monitor (NGO or academia) will undertake independent

66 The SGIA for the PCU will be set up immediately upon grant effectiveness, and the SGIA for each PIU will be set

up immediately after its subproject is approved by ADB. 67 The PCU and PIUs will receive necessary training to administer disbursement arrangements.



monitoring and evaluation of resettlement. MPWT will cause the PCU to submit a detailed PPME implementation plan for ADB’s review and concurrence within 6 months of loan effectiveness.

7.9 Project Review Apart from regular reviews, ADB and the Government will undertake a comprehensive review within one year of loan effectiveness when detailed design for the first phase subprojects is substantially completed. A mid-term review will also be undertaken within 30 months from loan effectiveness. These reviews will include a comprehensive evaluation of project implementation arrangements, detailed evaluation of the project scope, the actual implementation progress, feedback from PPME program, performance of consultants, institutional development progress, and possible reallocation of loan proceeds. The cost recovery mechanisms for each subproject will also be evaluated. Remedial action will be instituted as needed.



8. ECONOMIC AND FINANCIAL ANALYSIS

8.1 Economic Analysis Economic and financial analyses for the water supply and sanitation components of the subproject were conducted in accordance with ADB’s Guidelines for the Economic Analysis of Projects and the Guidelines for the Economic Analysis of Water Supply Projects (1998).

Economic benefits of the water supply components will result from safer, more reliable, and affordable water supply in the district towns. Quantifiable economic benefits of improved water supply services include benefits from non-incremental water consumption, valued at the weighted average supply price of water from non-piped sources; incremental water consumption, valued at average demand price; and other resource savings. The average economic internal rate of return (EIRR) for the sample subprojects is estimated at 18.26%, with Songkhone at 19.22%, Viengphoukha at 18.76% and Houixai at 16.80%, well above the economic opportunity cost of capital (EOCC) assumed at 12%. The average financial internal rate of return (FIRR) for the sample subprojects, on the other hand, is estimated at 0.78%, with Songkhone at 1.42%, Viengphoukha at 0.71% and Houixai at 0.22%, below the weighted average cost of capital (WACC) of 4%, the minimum rate test of the Bank. The FIRR results are due to the fact that the projected water tariff levels, which are the utility wide tariffs, are below the average incremental financial cost (AIFC) of the subprojects. The detailed economic and financial analyses are presented in Supplementary Appendices I and J, respectively.

The drainage and sanitation components will significantly reduce the incidence and severity of flooding, reduce ponding of polluted water in public areas, provide sanitation facilities in public areas and schools, and improve the environmental and living conditions and public health in the project area. The improvement in the environment may be reflected in the amounts people are willing to pay for property either in terms of rent or the purchase price of the property in the project area. Economic benefits of the drainage and sanitation components are quantified in terms of increased property values in the project area. The average EIRR for the sample subprojects is estimated at 17.04%, with Songkhone at 16.49% and Viengphoukha at 17.59%, well above the EOCC.

8.2 Tariff and Affordability The Project will adopt utility wide tariffs throughout the PNPs’ area of supply in line with WASA’s recommendations68 that are sufficient to meet the agreed upon financial objectives of the sector. The financial objectives are: i) fully recover utility wide operation and maintenance (O&M) costs; ii) recover utility wide debt service; iii) maintain a utility wide debt service ratio of at least 1.2; iv) gradually recover an increasing proportion of annual depreciation expense of the utility wide fixed assets; and v) maintain its accounts receivable at less than 90 days of annual sales. The projected utility wide tariffs that meet the financial objectives are presented below. The detailed financial analyses are presented in Supplementary Appendix J.

Table 8-1: Projected Utility Wide Tariffs Item 2008 2009 2010 2011 2012 2013 2014 2015

Luangnamtha (Viengphoukha) Domestic First 10 m3 1,258 1,574 1,886 2,018 2,159 2,310 2,472 2,645 >10 to 20 m3 2,200 2,753 3,298 3,529 3,776 4,040 4,323 4,626 > 20 m3 3,200 3,994 4,860 5,200 5,564 5,954 6,371 6,817 Average 1,850 2,312 2,817 3,014 3,225 3,451 3,692 3,951 Non-domestic 3,200 3,994 4,860 5,200 5,564 5,954 6,371 6,817 Overall Average 2,100 2,628 3,148 3,817 4,084 4,370 4,676 5,003 Tariff Increase (%) 128% 25% 20% 7% 7% 7% 7% 7% Domestic Return on Assets (%) 6% 13% 22% 7% 7% 9% 11% 14% Depreciation Recovered (%) 163% 248% 343% 220% 194% 219% 238% 267% DSCR (times) 6.8 6.6 9.0 12.2 5.8 6.5 7.1 5.1 Receivable (days) 110 110 99 90 85 80 80 80

68 Lao PDR Water Supply Authority 2008-2010 Tariff Review, October 2007.



Bokeo (Houixai) Domestic First 10 m3 1,238 1,431 1,664 1,781 1,905 2,039 2,181 2,334 >10 to 20 m3 3,000 3,468 4,032 4,314 4,616 4,939 5,285 5,655 > 20 m3 4,150 4,782 5,523 5,910 6,323 6,766 7,240 7,746 Average 2,750 3,206 3,700 3,959 4,237 4,533 4,850 5,190 Non-domestic 4,150 4,782 5,523 5,910 6,323 6,766 7,240 7,746 Overall Average 3,000 3,468 4,032 4,559 4,859 5,199 5,563 5,953 Tariff Increase (%) 119% 16% 16% 7% 7% 7% 7% 7% KPI Return on Assets (%) 11% 16% 22% 22% 26% 30% 35% 40% Depreciation Recovered (%) 310% 411% 529% 547% 604% 653% 706% 764% DSCR (times) 6.5 8.4 10.7 13.6 12.4 13.5 14.7 13.7 Receivable (days) 105 100 95 90 85 85 85 85 Savanakhet (Songkhone) Domestic First 10 m3 1,450 1,734 2,154 2,160 2,300 2,400 2,500 2,600 >10 to 20 m3 1,650 1,944 2,264 2,423 2,593 2,774 2,968 3,176 > 20 to 30 m3 1,800 2,049 2,375 2,541 2,719 2,909 3,113 3,331 > 30 m3 2,500 2,628 2,706 2,896 3,098 3,315 3,547 3,796 Average 1,750 1,997 2,320 2,482 2,656 2,842 3,041 3,253 Non-domestic 5,200 5,991 6,904 7,387 7,904 8,457 9,049 9,683 Overall Average 2,200 2,522 2,927 3,132 3,351 3,586 3,837 4,106 Tariff Increase (%) 65% 15% 16% 7% 7% 7% 7% 7% KPI Return on Assets (%) 7% 10% 13% 11% 12% 13% 15% 18% Depreciation Recovered (%) 375% 480% 599% 463% 462% 504% 549% 598% DSCR (times) 24.0 30.5 37.7 45.6 16.3 17.9 19.6 14.3 Receivable (days) 100 95 90 85 80 75 70 70 Source: Consultant’s calculation

The financial and affordability analyses for the subproject as presented below show that the tariffs proposed are affordable to all, including the low-income group households, under the generally accepted affordability principle that water bill should not exceed 5% of household income. The monthly water bill based on the proposed tariffs is within the consumers’ willingness to pay as gathered from the results of the socio-economic survey, except for Houixai which is a little higher (by 8%).

Table 8-2: Affordability and Willingness to Pay 2011 2015

Item Ave. HH LIG Ave. HH LIG

Viengphoukha Total Monthly Bill for Water (Kip) 17,275 13,088 25,519 17,762 Average Willingness to Pay for Piped Water (Kip/month) 52,367 52,367 Average Monthly Household Income (Kip) 697,000 375,000 697,000 375,000 % of Monthly Household Income Spent on Water 2.5% 3.5% 3.7% 4.7% Houixai Total Monthly Bill for Water (Kip) 56,239 16,002 58,670 17,342 Average Willingness to Pay for Piped Water (Kip/month) 51,923 51,923 Average Monthly Household Income (Kip) 1,488,000 390,000 1,488,000 390,000 % of Monthly Household Income Spent on Water 3.8% 4.1% 3.9% 4.4% Songkhone Total Monthly Bill for Water (Kip) 25,262 18,724 30,520 18,755 Average Willingness to Pay for Piped Water (Kip/month) 82,473 82,473 Average Monthly Household Income (Kip) 1,276,000 390,000 1,276,000 390,000 % of Monthly Household Income Spent on Water 2.0% 4.8% 2.4% 4.8% Source: Consultant’s calculation



9. PROJECT BENEFITS, IMPACTS, AND RISKS

9.1 Expected Benefits and Beneficiaries The Project is expected to benefit an estimated 154,000 residents (Y2015) in 130 core villages of about 1669 small towns by providing safe and reliable piped water supplies and improved urban environments that will have a direct impact on the health and living condition of the town communities.

Preventable water related diseases such as diarrhea and malaria, which are major causes of mortality and morbidity of adults and children in Lao PDR, will be reduced. Reduction in malaria will help to minimize the risk to pregnant women of abortion, premature birth, still-birth and maternal death and contribute to improving Lao PDR’s poor maternal and infant mortality rates. Other common debilitating water related diseases to be addressed by the Project’s sanitation and drainage improvements are intestinal worms and dengue. With high rates of helminth infections, improvements in sanitation and hygiene could substantially improve nutrition and learning performance of school children in the Project towns. High calcium content in the water in the some towns results in problems with kidney and urinary tract stones that affected 12-18% of adults and children;

The expected health benefits are significant in terms of reducing lost time at work and school, and health expenditure. The benefits will derive through a combination of: (i) a safe and convenient water supply; (ii) improved environmental sanitation and removal of stagnant water through drainage and related works; (iii) increased use of domestic toilets through better awareness, appropriate sanitation models, and improved water supply; (iv) increased knowledge and awareness of health and hygiene issues; and (v) avoidance of heavy labor work involved in collecting water. The health benefits associated with physical investment of the Project will be enhanced by the hygiene awareness and promotion activities.

About 106 core villages in 13 towns will benefit directly from village environment improvements, providing footpaths, and improved drainage and sanitation in residential areas. The towns’ economies will benefit from enhanced productivity as a result of health improvement, time savings in collecting water, as well as from increased urban efficiency arising from improved drainage, and sanitation. Residents in towns will also benefit from lower water costs and from savings in health care costs.

9.2 Poverty Reduction All Project interventions will have a positive impact on the poor directly or indirectly. About 15% or 22,000 urban poor are expected to benefit from the Project in 2015. Where the interventions do not directly target the poor, socially inclusive processes incorporated in the Project will ensure that the poor will benefit proportionately. Benefits for the poor will be realized through reduced drudgery, improved health, reduced expenditure on health care, and increased access to income-earning opportunities.

Under the Project, the construction contractor will install household water connections with no up front connection fees, which will eliminate previous connection barriers to piped water services for the poor.. The VEI is designed to address the needs of the poor in particular through grants to assist poor households to construct or upgrade their household toilets, and to supply taps, standposts, and soakage pits for piped water connections. Village environmental improvement works will be carried out in a participatory way to enable the poor to play an active role in designing and implementing the works. The 10% community contribution to the small scale community environmental improvements is flexibly structured to allow the poor (and near poor) to contribute with labor or materials instead of cash. Greater representation of the poor on village WATSANs will be encouraged.

9.3 Gender Impact Both men and women will benefit from project activities. About 50% of the total beneficiaries will be female. In the Project towns, women are generally responsible for water collection and purchase for domestic use. They are also responsible for family hygiene and sanitation and for the provision of 69 This is an initial estimate, based on assumed Project funding of $34million. The final number of towns depends on

available funding and implementation efficiency.



care in the event of family sickness. The surveys undertaken for potential target towns during the Project preparation shows that women are the most vocal advocates for an improved water supply, and linked the benefits of piped water supply to distinct health, convenience and time-saving benefits. Women will be the major beneficiaries of the piped water supply system and other village environmental improvements through timesaving, reduction in workload, and improved family health. Since women play strong roles in family hygiene and water-related activities, the CAP gives particular attention to engagement of women in the decision-making, learning and training activities under the Project to enhance benefits from the piped water system and the value addition of the community health and awareness activities. Women will also benefit from the drainage improvements (Output 3). Upgrading primary and secondary (roadside) drains roads will improve women’s access to markets, extension and social services, and information. The construction of public or school toilet facilities will take into consideration specific gender needs, thereby giving girls more privacy. A synergy of these effects could enhance human capital for women.

The role of women in formal planning and decision making will be enhanced through increased representation of women in village WATSANs and the PIU. The LWU will actively participate in the Project and will be strengthened at several levels through formal and on-the-job training. Women will be encouraged to take up technical and leadership roles in the sector, and a proportion of scholarships for tertiary study will be reserved for women.

9.4 Environmental Impacts The proposed project components address key environmental issues of access to safe water, sanitation and drainage issues in about 16 small towns around the country and to provide for financial sustainability, institutional development, capacity development and public participation requirements both to sustain these improvements and to foster further improvements as the towns grow and resources become available. The water supply, sanitation and drainage improvements are expected to have a major positive impact on the public health and quality of life for the towns, all of which suffer regular occurrence of waterborne diseases, or diseases spread by insect vectors that breed in stagnant water. Negative environmental impacts of the project are relatively minor and in most cases can be mitigated. In some situations, the adequacy of clean water sources remains to be established through monitoring of flows and quality over a four year period.

The main potential environmental impact associated with the water supply systems is sludge and backwash water generation at the water treatment plants and their impact on the receiving water courses. In the cases of sample subprojects in Songkhone and Viengphoukha, the water treatment plants are located 2.5-3.5km from the main rivers and potential impacts of sludge disposal on local water courses will be mitigated by settling sludge and backwash water in sludge lagoons prior to release from the site. Sludge that accumulates in the lagoons will be dried on site and transported to a suitable disposal area.

As some project works will involve soil excavation in areas around the towns, the presence of unexploded ordinance (UXO) is a potential concern. Reliable information is available on potential sources of UXO from bombings made by US aircraft during the war years of the late 1960s and early 1970s, however UXO remaining from bombs dropped by the Royal Thai, the Lao or the Southern Vietnamese Air Forces during this period is less reliable, as is information on ordinance remaining from ground fighting operations. Risks can be allayed in some cases where there is adequate local knowledge on the presence of UXOs, in many cases specialist mine detection and clearance services will be required to remove this threat.

The nature of further impacts and means of mitigating them vary according to the terrain in the various towns, the severity of the dry season, the presence of temples, proximity to protected areas and adequacy of available raw water sources.

Other areas of potential concern that arise in the project towns include (i) the increased burden on the drainage system that will be caused by increased water usage in homes that receive connections to the water supply system, (ii) potential conflicts with other water users, (iii) safety risks, particularly to children, from larger, improved drains with fast flows during the wet season (iv) risks associated with



the operation and maintenance of water treatment plant and intake pumps (v) potential impacts on temples and monuments, (vi) noise nuisance when the WTP is located near to homes, schools or hospitals, (vii) encroachment on the forests, particularly those in protected areas, by groups of workers living temporarily in the area during construction and (viii) other construction impacts such as noise and dust generation, silt release, public and worker safety, and impedance to traffic.

Principal mitigation measures to be adopted include (i) further development of the village drainage systems under the Village Environmental Improvements for each town, (ii) public awareness raising over hygiene, sanitation and upkeep of village environments, (iii) provision of safety features such as hard coverings on improved drains, (iii) capacity development for sound operation and maintenance of the infrastructure, (iv) avoidance of temples and monuments in the layout of water supply and distribution schemes, (v) binding requirements for contractors to exercise high safety standards and prevent workers from hunting, gathering fuelwood or trading in wildlife products during construction and (vi) contractual obligations for adherence to principles of good construction practice. The adequacy of flows and of quality will be confirmed by monitoring over a four year period, for the candidate water sources in each town.

Documents

Lao PDR: Small Towns Water Supply and Sanitation Sector ......TA 4875-LAO: Small Town Water Supply and Sanitation Sector Project Final Report December 2007 Page (ii) GHD Pty Ltd ABN