Water Supply and Sanitation Sector Assistance Evaluation in Sri Lanka

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SSeeccttoorr PPaappeerr

Sri Lanka Country Assistance Program Evaluation:

Water Supply and Sanitation Sector

August 2007


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CURRENCY EQUIVALENTS(as of 27 April 2007)

Currency Unit Sri Lanka rupee (SLR)

SLR1.00 = $0.0092$1.00 = SLR109.27

ABBREVIATIONS

ADB Asian Development BankEIRR economic internal rate of returnm3 cubic meterMDG Millennium Development GoalNWSDB National Water Supply and Drainage BoardTA technical assistanceUNDP United Nations Development ProgrammeUSAID United States Agency for International Development

NOTE

In this report, $ refers to US dollars.

Director General Bruce Murray, Operations Evaluation Department (OED)Director R Keith Leonard Operations Evaluation Division 1 OED


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CONTENTS

Page

Map ii

A. Scope and Purpose 1

B. Sector Context 1

C. The Country Sector Strategy and Program of ADB 81. ADBs Sector Strategies in the Country 82. ADBs Sector Assistance Program 12

D. Assessment of ADBs Sector Strategy and Assistance Program 16

E. ADBs Performance in the Sector 20

F. Identified Lessons 21

G. Future Challenges and Opportunities 23

AppendixPositioning/Coherence of Asian Development Banks Water Supply

and Sanitation Sector Strategies in Sri Lanka 24

Njoman Bestari (team leader, principal evaluation specialist) and Jennifer Simon(consultant, evaluation research associate) prepared this evaluation working paper. Caren


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A. Scope and Purpose

1. This evaluation is part of the Country Assistance Program Evaluation for Sri Lanka.

1

Ittakes sector context into account and evaluates the strategies and assistance of the AsianDevelopment Bank (ADB) in the water supply and sanitation sector. 2 The positioning andperformance of ADBs sector strategies and assistance were analyzed. This evaluationassesses the contribution of ADB to development results in Sri Lanka and identifiesdevelopment issues and lessons in the sector pertinent to the preparation of the next countrypartnership strategy. Situations discussed herein were updated in March 2007.

B. Sector Context

2. Political, Economic, and Social Settings. Water is a vital resource, indispensable tolife, and essential for overall economic and social development of a country. In Sri Lanka,access to safe water is considered an inalienable right of its people, thus making its provision atop priority of the Government. The World Water Supply and Sanitation Decade (19801990)had been an important turning point in planning and programming investments for the watersupply and sanitation sector in the country. The Strategic Macro-Investment Plan (19861995)adopted in 1985 called for sustained allocation of funds amounting to 4%5% of total public

investments to meet national development targets for the sector. Before 1980, only 50% of theurban population and 56% of those in the rural areas had access to safe drinking water. 3 In1986, about 26% of the urban population had access to piped water supply. In comparison, only2% of the rural population had access to piped-water services, 4% relied on standpipes, and avast majority obtained water from wells and other surface sources.4 Piped water supply, whereavailable, was characterized by irregular and less than 24-hour/day supply, substandard waterquality, poor service coverage, and high incidence of unaccounted water (loss of water to leaks,theft, and other undetermined causes).

3. Sri Lanka is still home to millions of people without access to adequate water supply.According to the United Nations Development Programme (UNDP) in 2004, the countryachieved 79% coverage of improved water supply 5 (Table 1). Comparisons among countriesshould be cautiously interpreted due to issues related to definitions of indicators (Table 2).There are differences in reported data and interpretations of access and coverage of watersupply. According to the National Water Supply and Drainage Board (NWSDB), water supplycoverage in the country reached 72% in 2004 and 74% by the end of 2005. A majority of thepeople without access to improved water supply live in rural areas. Among urban population in

2002, about 75% benefit from piped water supply services, compared to only 14% of the ruralpopulation. Disparities with respect to access are evident across districts (Table 3). By 2001,access to safe drinking water, including through protected wells, had become available to 82%of the total population, excluding those who reside in conflict-affected areas in the North andEast (Table 4). About 91% of the population in the Western Province had access to safedrinking water, with Colombo district recording the highest access at 96%. Conditions in theNorth and East particularly in areas affected by protracted conflict are not fully reflected in


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aggregate statistics. According to UNDP (2005), the proportion of households in northerndistricts having access to improved water supply in 2001 was reported to be at only 21.2% in

Mannar, 67.8% in Vavuniya, and unknown in Mullaitivu. The World Bank reported that only 46%of the population in North and East has access to safe drinking water.6

Table 1: Status and Trends of Selected MDG Indicators in Sri Lanka

MDG TargetIndicator 1990

Latest YearAvailable 2015 Status

Proportion of Population BelowNational Poverty Line, TotalUrban

Rural

Poverty Gap Ratio (Incidence andDepth Of Poverty)

Children Under Five Mortality Rate(Per 1,000 Live Births)

Infant (01 Year) Mortality Rate

(Per 1,000 Live Births)

Population With Access to ImprovedWater Sources, TotalUrbanRural

Population With Access to ImprovedSanitation, TotalUrbanRural

26.115.0

22.0

5.6

32

26

689162

698964

22.7 (2002)

5.1 (2002)

14 (2004)

12 (2004)

79 (2004)9874

91 (2004)9889

13.1

12

12.8

86

93

Not on track

Not on track

On track

On track

On track

On track

= not available, MDG = Millennium Development Goal.Source: UNDP. 2005. Millennium Development Goals Country Report: Sri Lanka. Colombo.

4. With respect to sanitation services, considerable improvements have been achievedover the years. In the 1980s, sewerage services were available in only some parts of Colomboand most people relied on septic tanks and pour-flush latrines for waste disposal. In the early1990s, 50% of the people in the rural areas had sanitation facilities.7 According to UNDP, Sri

Lankas access to improved sanitation reached 91% in 2004 (Table 1), higher than that of alldeveloping nations (51%) and South Asian countries (37%).8 Comparing access to improvedsanitation across districts in Sri Lanka, the highest access was recorded in Colombo (96.2%)and Gampaha (96.5%), and the lowest was reported to be in Batticaloa (57%) in the East. Thereare other reported data of different sources with conflicting reports on access to water supplyand sanitation. In general, data on conflict-affected areas in the North and East are incompleteand less reliable than those of other parts of Sri Lanka


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Table 2: Comparative Selected MDG Indicators (As of Latest Year Available)

Indicator Sri Lanka India Pakistan Bangladesh Viet Nam

Proportion of Population BelowNational Poverty Line, Total

UrbanRural

Poverty Gap Ratio (Incidence andDepth of Poverty)

Children Under Five Mortality RatePer 1,000 Live Births

Infant Mortality Rate (01 Year) Per1,000 Live Births

Population With Access to ImprovedWater Sources, Total

UrbanRural

Population With Access to ImprovedSanitation, Total

UrbanRural

22.7 (2002)n.a.n.a.

5.1 (2002)

14 (2004)

12 (2004)

79 (2004)9874

91 (2004)

9889

28.6 (1999)24.730.2

8.6 (1999)

85 (2004)

62 (2004)

86 (2004)9583

33 (2004)

5922

32.6 (1999)24.235.9

3.1 (2002)

101 (2004)

80 (2004)

91 (2004)9689

59 (2004)

9241

49.8 (2000)36.653.0

8.1 (2000)

77 (2004)

56 (2004)

74 (2004)8272

39 (2004)

5135

28.9 (2002)6.6

35.6

0.5 (2002)

23 (2004)

17 (2004)

85 (2004)9980

61 (2004)

9250

MDG = Millennium Development Goal, n.a. = not available.Source: UNDP. 2005. Millennium Development Goals Country Report: Sri Lanka. Colombo.

Table 3: Percentage of Population with Access toImproved Water Sources and Sanitation

District Percentage Access to Improved

Water Sources (2001)

Percentage Access to

Improved Sanitation (2002)ColomboGampahaKalutaraKandyMataleNuwara EliyaGalleMataraHambantotaKurunegalaPuttalamAnuradhapuraPollonnaruwaBadullaMonaragalaRatnapuraKegalleJ ff

95.890.984.182.679.268.881.878.285.885.992.583.576.768.664.658.669.894 1

96.296.595.395.795.479.994.596.695.190.380.883.292.492.288.694.794.781 0


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Table 4: Access to Safe Drinking Water by ProvinceHouseholds (Percent)

Province 1993 1994 2001

WesternCentralSouthernNorthernEasternNorth WesternNorth CentralUva

SabaragamuwaSri Lanka

85.770.566.9n.a.n.a.81.767.162.7

50.274.1

84.162.562.1n.a.n.a.

74.969.147.3

47.568.4

91.578.380.5n.a.n.a.

87.980.567.9

63.882.0n.a. = not available.Source: UNDP. 2005. Millennium Development Goals Country Report: Sri Lanka. Colombo.

5. Prior to 1975, the responsibility for the provision and management of water supply andsanitation services was divided among several agencies, and two key agencies were the WaterSupply Division of the then Ministry of Irrigation, Power and Energy for the water supply sectorand the Ministry of Health for the sanitation sector. The provision of piped water and public wells

was mainly the responsibility of local authorities. In 1974, through an Act of Parliament, NWSDBwas established under the then Ministry of Irrigation, Power and Highways, to become theprimary agency responsible for water supply and sanitation in the country. Consequently, basedon the NWSDB Act (1974), institutional arrangements for the provision and management ofwater supply and sanitation services changed. Several major urban water supply schemesoperated by local authorities were taken over by NWSDB to improve coverage and service. 9Until 2006, NWSDB was functioning under the Ministry of Urban Development and WaterSupply. The Ministry has been the lead policy making body for the development of the watersupply and sanitation sector. It has also been the lead executing agency for all publicly-financed

development projects in the sector, including foreign-funded projects. While NWSDB is the chiefimplementing agency for water supply and sanitation projects, the Ministry of UrbanDevelopment and Water Supply has been involved in the development of the sector in the ruralareas. Recent changes and expansion of the number of government ministries in Sri Lanka(January 2007) will have implications on portfolio and subject responsibilities of the respectiveministries (cabinet, non-cabinet, and deputy ministers). With this change in January 2007,NWSDB now reports to the Ministry of Water Supply and Drainage.

6. NWSDB operates a total of 287 water supply schemes which service 38.6% of thepopulation: 28.6% with piped water supply and 10% with hand-pumped tubewells.10 The rest ofthe population relies on water systems operated by communities, local authorities, andindividual households, including wells and rain harvesting systems. NWSDB promotes thetransfer of responsibility for operation and maintenance of small urban and rural water supplyschemes to local authorities and community-based organizations. From 1995 to 2004, NWSDBincreased its annual water production capacity from 275 million cubic meters (m3) to 367 million


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137.7 million m3, while each of the remaining five regional centers recorded annualconsumptions ranging from 10 to 28 million m3.

7. Evolving Sector Challenges. A persistent challenge facing the water supply andsanitation sector has been the large rural-urban disparity in the level and quality of servicesprovided to urban and rural populations. Although major progress has been achieved inimproving access to safe water in urban areas, coverage in rural areas remains far behind.Actual water supply and sanitation coverage in conflict-affected areas in the North and East isnot accurately known and available data are often unreliable. While NWSDB has a mandate toimplement water development projects in urban and rural areas, it has primarily concentrated itsinterventions in densely populated areas. However, NWSDB is also moderately active in rural

areas, attempting to strengthen water supply services by establishing rural water units in allregional support centers. As a line ministry for water supply, the Ministry of Urban Developmentand Water Supply implements rural water projects.

8. Although there are provisions11 in the NWSDB Act (1974) for levying charges for thesupply of water and sewerage services, water tariff was not introduced in the country until1982.12 Since 1982, several tariff revisions had been effected. The first tariff revision waseffected in April 1990, followed by major tariff revision in January 1994. Subsequently, two tariff

revisions followed in 1997, and one revision each in 1998, 1999, 2001 and 2002. This reflectedan increasing consciousness of the need for cost recovery and necessary tariff adjustments.The most recent revision to the water tariff was made in March 2005. The water tariff structurein Sri Lanka is applied uniformly nationwide. It was largely based on recovery of recurrent costs(primarily for operation and maintenance), plus either debt service or depreciation, whichever ishigher. NWSDB plans to introduce a tariff policy that aims for full recovery of recurrent costsplus debt service and depreciation costs. Nevertheless, tariff adjustment cannot be easilyeffected, as it involves processes which are highly politicized. In order to make water supplyaffordable to poor households, a lifeline tariff is defined for a minimum quantity of water for

domestic consumers. This lifeline tariff is applied to all households for their first 15 m3 of monthlywater consumption.13 About 75% of domestic consumers belong to the lowest consumption slabof less than 15 m3 per month. For non-domestic users, average tariffs amount to SLR50 per m3.In effect, non-domestic users subsidize household consumers of water.14

9. As part of government policy, the Government uses NWSDB as a development agent toprovide water supply to the public. In the context of this role, NWSDB depends on theGovernment for capital investments through concessionary loans. The administration and

management of NWSDB has undergone progressive transformation aimed at achieving greateroperational efficiency of regional support centers. Operational functions (including planning anddesign of development works) have been gradually delegated to regional support centers. Whileoverall revenue collections are managed at the NWSDB head office (Colombo), financialadministration and management are gradually devolved to the regional support centers.Regional support centers independently administer their operation and maintenance budgets,


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while billing and metering are decentralized to the district offices. NWSDB has plans to promotegreater accountability and efficiency at regional support center level, with a management and

information system capable of accounting expenditures and revenues for each of the watersupply system.

10. In accordance with the decentralization policy initiated by the Government in the early1990s, NWSDB undertook a major initiative to devolve decision-making in investment andoperations and maintenance to local governments to encourage their participation, and toincrease accountability and sustainability in the provision of water supply and sanitationservices. To date, only a few local authorities have accepted this responsibility. Major reasonsfor the reluctance to accept the transfer of such responsibilities include the (i) limited capacity of

local authorities to manage and operate water supply schemes, (ii) limited financial capacity toinvest, and (iii) the likely politicization of the administration of such schemes. Local authoritieshave many administrative functions, and they are not specialized agencies for water supply andsanitation services. NWSDB encouraged the transfer of management of water supply schemeswith less than 1,000 connections to community-based organizations to minimize operations andmaintenance costs, while the ownership of assets would remain with NWSDB.

11. There has been modest progress with policy reform since the commencement of reform

discussions in the early 1990s. This progress has been influenced by government changes andthe concomitant changes in their policy stance. Major policy areas that have been discussedinclude (i) rationalization of water tariffs and the establishment of an independent regulatoryauthority; (ii) strengthening of local authorities capacity to perform their devolved mandates,particularly for the delivery of water supply and sanitation services; (iii) establishment of policiesand procedures for the allocation of water rights; and (iv) participation of the private sector in theprovision and management of water supply and sanitation services.

12. With respect to the establishment of a regulatory body, the Public Utilities Commission, a

multisector regulator for electricity, petroleum, and water was enacted by Parliament in 2003.However, regulations for the water sector within the framework of the Public UtilitiesCommission are yet to be put in place. The Water Services Reform Bill was an initial attempt atinstituting a coherent policy for the regulation of water service provision, tariff setting, consumerprotection, water quality standards, and facilitation of private sector participation in waterservices. The Water Services Reform Bill was approved by the Cabinet of ministers in mid-2003, and was subsequently submitted to Parliament in October 2003. However, the Bill waschallenged by a public activist on the ground that it did not adequately reflect the mandates and

roles of local authorities. The Supreme Court ruled that the Bill should be discussed further withprovincial councils and local authorities. Although the Bill was redrafted in December 2003, itsapproval had been further delayed, and it was subsequently abandoned because of politicalreasons.15 Further deliberations led to a decision in December 2005, to explore an option toamend the NWSDB Act instead of pursuing a more comprehensive water services reform.

13 In 2003 a draft amendment to the NWSDB Act was prepared and submitted to


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and costs of water wasted, misused or unduly consumed; and (iv) make acts of pollution of anystream, reservoir, or waterworks an offense. Other changes as specified in the proposedamendment would enable NWSDB to establish and fix rates and other charges for the supply ofwater and sewerage services with the approval of the Public Utilities Commission. However, theproposed amendment to the NWSDB Act was not signed by the Speaker of the House(Parliament) and consequently not registered in the Official Gazette. With the decision made in2005 in favor of amending the NWSDB Act, a plan to introduce an amendment to the NWSDBAct is currently being considered.

14. In the context of the management of water resources, there are serious challengesfacing the availability and sustainability of water sources for household, commercial, and other

competing uses in the future. Scarcity of water for drinking is becoming a serious concern inmany parts of the country, particularly in the dry zones and during drought periods. Watercontamination and inadequate water quality testing have increased the difficulty for securingsafe water sources. Contaminated water sources and poor sanitation in rural areas havecontributed to infectious and parasitic diseases among people, particularly young children.Irrigation water is frequently a source of drinking water, and it helps in recharging ground water.In some areas, NWSDB has been tapping water from irrigation canals, and this in some caseshas led to conflicts with farmers and other water users. Adequate management of irrigationsystems is critically essential to minimize degradation of water resources on which peopleslivelihoods depend. The effects of irrigation and the issues related to water logging, salinity, landdegradation, ground water depletion, ecosystems, and biodiversity are interrelated. Thus, it hasbecome imperative for the water sector to have a comprehensive policy that can govern theintegrated allocation and management of water resources in the country. In 2003, a draftNational Water Resources Act and Policy was prepared in response to this pressing issue.However, it has remained under discussion. Given the evolving social and political contexts,there is no clear indication that an agreement can be reached on this subject in the near future.

15. Evolving Governments Sector Strategies and Priorities. Since Sri Lankasindependence in 1948, the Government has carried out many programs to develop waterresources, and provided part of the population with basic utilities including water supply andsanitation. During the World Water Supply and Sanitation Decade (19801990), theGovernment embarked on an ambitious plan, targeting 100% water supply coverage of urbanpopulations and 50% coverage of rural populations by 1990. However due to financial, physical,and other constraints, these targets were only partially achieved.

16. Subsequently in 2000, in response to the United Nations Millennium DevelopmentGoals (MDGs),16 the Government renewed its commitment to making water supply andsanitation accessible to all in its poverty reduction strategy. Specific goals of this strategyinclude (i) provision of safe drinking water to 85% of the population by 2015 and 100% by 2025;(ii) provision of piped water supply to 40% of total population by 2011; (iii) service levels andquality of water to achieve national standards in both urban and rural contexts; (iv) access toadequate sanitation to 93% of the population by 2015 and 100% by 2025; (v) piped sewerage


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institutional viability and capacity of key sector agencies, including through various institutionalprograms for NWSDB and local authorities.

17. In 2002 and with the issuance of the Governments new development policy document,17the Government renewed its commitment to the sector, emphasizing three key mandates: (i)promotion of full-cost recovery through an appropriate tariff policy, which would be accompaniedby reduction and eventual elimination of cross-subsidies among users; (ii) transference ofschemes under 1,000 connections to community-based organizations; and (iii) creation of aninvestment climate conducive to attract private sector participation. These issues were intendedto be addressed by policy and sector reforms. The reduction of cross-subsidization of domesticconsumers by industrial consumers would make more money available for increasing direct

connections to the under-served urban poor.

18. In 2002, the Ministry of Urban Development and Water Supply prepared a draft watersupply and sanitation policy to provide guidance to sector agencies (including NWSDB,provincial councils and local authorities), lending agencies, external donors, and community-based organizations involved in the provision of water supply and sanitation services, for theformulation and implementation of strategies and development programs to achieve coveragetargets, service quality, and cost recovery objectives of the Government.18 This draft policydocument was revised in August 2006 and renamed as national policy on drinking water supply.NWSDB also prepared parallel policies for sanitation and rural sanitation in 2006. The revisedpolicy proposal highlights future direction of developments including the operation andadministration of NWSDB. Major points include (i) gradual decentralization of operationalfunctions to regions; (ii) development of a transparent costing system at the regional level; (iii)handing over of operations and maintenance and management of small urban schemes andrural water supply schemes to local authorities and community-based organizations; (iv) settingof a national tariff system to recover recurrent costs, depreciation, and debt service throughperiodic tariff review; (v) gradual reduction of cross subsidization among domestic and non-

domestic users; (vi) effective demand management through the tariff system; (vii) efforts toconserve water and protect water sources; and (viii) sustained research and developmentprogram to ensure the quality of water supply and sanitation services.

C. The Country Sector Strategy and Program of ADB

1. ADBs Sector Strategies in the Country

19. Evolution of ADBs Sector Strategies. ADB assistance to the water supply andsanitation sector began in the second half of the 1980s, almost two decades since it started itsoperation (1968) in Sri Lanka. ADB stepped into the sector at the time when the Governmentspublic investment policy was characterized by heavy capital outlays well beyond the level thatdomestic resources could meet. Prolonged neglect of operations and maintenance had resultedin the deterioration of physical assets including water supply and sanitation infrastructures.Funding constraints inadequate operations and maintenance capability and insufficient cost


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sector, ADB emphasized institutional and financial capacity improvement of sector agencies aspart of its development interventions. Specifically for NWSDB, focus was given to improving itsinstitutional and management capacity through consolidation and gradual decentralization ofcontrol and decision-making, and the restructuring of the organization from one which wasoriented toward design and construction to one which would be strongly oriented towardoperation and maintenance.19

21. In the early 1990s, while ADBs water supply and sanitation sector strategy continued tobe guided by the priorities of the Government, the strategy also paid attention to externaldevelopments, including the International Conference on Water and the Environment (January1992), the World Bank/UNDP International Conference on Water Utilities (May 1992), and the

evaluation results of 20 years of World Bank-funded water supply projects (June 1992). Informulating ADBs strategic development objectives in the sector, ADB also referred to theWater Utilities Data Book for the Asia-Pacific region (1993) and took into account identifiedlessons from ADB-financed water supply projects. The key elements of ADBs water supply andsanitation sector strategy included (i) promotion of comprehensive water resource management;(ii) conservation of water through the introduction of demand management and reduction ofunaccounted water; (iii) integration of water supply and sanitation; (iv) improving the financialviability, operational efficiency, and sustainability of water utilities; (v) promoting more equitableaccess to water, especially among the poor; and (vi) recognizing water as an economic andsocial good.20

22. During 19982003, with increased experience and continued engagement, ADBsapproach to water supply and sanitation development upheld the thrusts of its previousstrategies for Sri Lanka, although during this time the strategy placed more emphasis onsecondary towns and geographical areas outside Colombo to improve access of poor people towater supply and sanitation facilities. Accordingly, the strategy underscored the need to ensurethe viability of water supply and sanitation facilities in urban centers through the strengthening of

their planning, management, and fiscal capacity. To sustain optimum impact of ADBsassistance and to promote efficiency in the use of resources, ADBs sector strategyreemphasized the need to introduce policy reforms to complement investments in the sector.Meanwhile, ADB recognized the role of bilateral aid agencies in the sector, and hence it wasenvisaged that additional analysis would have to be undertaken to determine whether furtherADB support for the sector would be warranted. Nevertheless, the strategy ensured continuedADB involvement in the sector.21

23. In 2000, in response to the MDG declaration and the growing demand for improvedwater supply and sanitation in Sri Lanka, ADB reconsidered its strategy for the sector. ADBsinvolvement in the sector has been predominantly in water supply for secondary towns and ruralareas. In the 20042008 country strategy and program, more focus was placed on improvingthe operational and financial capacity of existing services and expanding water supply servicesto new areas. Regarding wastewater, there has been modest ADB involvement in the provisionof sanitation in rural areas and drainage in secondary towns 22 Sanitation services are generally


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still underdeveloped in Sri Lanka. There is only one urban center, Greater Colombo, which ispartly equipped with a sewerage system.

24. Positioning and Coherence of the ADBs Sector Strategies. The evolution of thecountry strategy for the water supply and sanitation sector has principally been guided by theevolving development priorities of the country, taking into account key focus areas of donorassistance to the sector. In 1986, when ADB first intervened in the sector, ADB did not have aclear-cut strategy for the sector, although the development approach was based on country-driven initiatives. Fundamentally, the formulation of the sector strategy at that time benefitedfrom aid coordination with development partners. The initial impetus for ADB intervention in thesector transpired from its interaction and coordination with leading development partners in the

sector such as the Danish International Development Agency, United States Agency forInternational Development (USAID), Japan Bank for International Cooperation, JapanInternational Cooperation Agency, and the World Bank. The initial focus of ADBs sectorstrategy complemented the strategic development objectives of Sri Lanka and developmentpartners, including capacity development of NWSDB, rehabilitation and augmentation of watersupply and sanitation systems in major urban centers (such as Colombo, Ampara, andAnuradhapura), and the strengthening of service delivery in urban centers and rural areas.Pertinent issues were identified, although the sector strategy could have benefited from more in-depth sector work, risk assessment, monitoring mechanisms, and analysis of the Governmentsabsorptive capacity.

25. During 19931997, the sector strategy continued with the strategic thrust of the previousstrategy. With the increasing reliance of the Government on external assistance to finance thegrowing investment requirements for the sector, ADB recognized the potential major role it couldplay in the sector. While ADB initially positioned itself in secondary towns and rural areas,leaving Greater Colombo and NWSDB to the World Bank and USAID respectively, and later toJapan Bank for International Cooperation, the introduction of national water tariffs and the

withdrawal of USAID from the water supply and sanitation sector in 1991 presented newopportunities for ADB to deepen its presence in the sector.

26. Although ADBs water supply and sanitation sector strategy (19931997) lacked depth tosome extent, its formulation was reinforced with lessons from project experiences andrecommendations derived from sector studies.23 Coordination with development partnerscontinued through ADBs participation in aid coordination meetings. Consequently, ADBassistance broadened to include issues related to capacity development of major sectorinstitutions, particularly NWSDB.24 This, in some way, provided ADB with increased leverage toengage the Government in policy dialogues. However, this positioning was not sufficientlysupported with analysis of socio-political challenges facing institutional and policy reforms in thesector. The 19931997 sector strategy did not have risk assessment and a monitoringmechanism to track the outcomes of planned interventions. Nonetheless, the positioning of thesector strategy (19931997) was partly satisfactory, and it responded to the sector challenges


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at that time. Without a monitorable results-based framework, the strategy was less coherent inits development approach and choices to tackle the sector challenges and issues.

27. Subsequently, ADBs 19982003 water supply and sanitation sector strategy aimed toimprove service coverage, enhance cost recovery, and promote self-financing capacity of sectoragencies. ADB maintained its focus on secondary urban centers and the concomitantstrengthening needed at the local level. The sector strategy stressed the need for additionalsector analysis to determine whether additional ADB support would be warranted. Performancemonitoring was established for the first time for the sector. Key performance criteria included (i)progress of reforms, (ii) implementation performance of sector investments, and (iii) progress ofinstitutional capacity development. Overall, the 19982003 sector strategy was much more

reasoned than the preceding strategies, with its cautious stance on sector development. The19982003 strategy was coherent, balanced, and well-positioned. Overall, the positioning of the19982003 sector strategy was satisfactory, recognizing the paucity of sound sector analysisupon which the direction of ADB intervention could be based.

28. The MDG declaration in 2000 and the government strategy (2002) provided much of therationale and justification for ADBs 20042008 water supply and sanitation sector strategy. Therenewed commitment of the Government to the sector in light of the progress then with thepeace process, as well as with the modest progress with reform processes, had prompted ADBto reconsider its role in the development of the water supply and sanitation sector. On the basisof cumulative experience from past water supply and sanitation projects, economic and sectorassessments, policy dialogues with the Government, stocktaking of donor assistance, anddonor coordination, ADB consolidated and sharpened its sector strategy. ADBs uninterruptedsupport to the sector contributed to a significant buildup of sector knowledge and strongpartnership between ADB and the Government. The sector strategy was coherent, respondingto growing demand for sanitation and sewerage services in large urban areas as well as watersupply and sanitation investment and rehabilitation in conflict-affected areas in the North and

East. In anticipation of peace dividends following the ceasefire agreement (2002), ADBresponded to reduce disparities in the country by supporting the preparation of Jaffna PeninsulaWater Supply and Sanitation Project. However, with the escalation of armed conflict in 2006,this proposed project has been deferred. Given the development contexts and priorities of thecountry, the positioning of the 20042008 water supply and sanitation sector strategy wassatisfactory.

29. Overall, the positioning of the ADBs water supply and sanitation sector strategies overthe last decade was assessed satisfactory (Table 5). This is described in detail in theAppendix of this paper.


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Table 5: Evaluation Rating of the Positioning of Sector Strategies

Criteria for Positioninga

SectorStrategy

SufficientBasis for

theStrategy

GovernmentsAbsorptive

Capacity andOwnership

ADBs ComparativeAdvantage and

Partnership withOther Development

Partners

Focus/Selectivity

andSynergies

Long-TermContinuity

Constraints/Risks and

Adjustment/Monitoring

Mechanisms toAchieve Targets

WeightedAverage ofAll Criteria

199319971998200320042008Overall

1 (PS)2 (S)3 (HS)

1 (PS)2 (S)2 (S)

2 (S)3 (HS)3 (HS)

2 (S)2 (S)2 (S)

1 (PS)2 (S)2 (S)

0 (US)1 (PS)2 (S)

1.17 (PS)2.00 (S)2.33 (S)1.83 (S)

ADB = Asian Development Bank, HS = highly satisfactory, PS = partly satisfactory, S = satisfactory, US =

unsatisfactory.a

Note: HS = 3 points, S = 2 points, and US = 0. An equal weight is applied to each of the six criteria for positioningand coherence. The ratings are as follows: (i) HS > 2.5, (ii) 2.5 S 1.6, (iii) 1.6 > PS 0.6, and (iv) 0.6 > US.

2. ADBs Sector Assistance Program

30. ADBs Sector Assistance Program. Loans and technical assistance (TA) approved byADB are listed in Table 6. In general, programming for the water supply and sanitation sectorassistance had adhered to its corresponding sector strategies. The 19881992 sector

assistance emphasized support for administrative and institutional development, and promotionof sustainable operation and maintenance. This was pursued through policy dialogues on costrecovery and decentralization of responsibilities to local governments. Subsequently, the 19931997 sector assistance included provisions for water supply and sanitation physicalinfrastructure development in the Southern region, especially in areas where poverty was stillpervasive. Coupled with infrastructure development, policy dialogues promoted domesticresource mobilization, cost recovery, water pricing, improved operation and maintenance,institutional strengthening, and maintenance of financial viability of water supply and sanitation

schemes and their operating entities. ADB also promoted private sector participation ininvestment and operation and maintenance of infrastructure. The dialogue eventually led to theadoption by the Government of a water and sanitation sector policy statement in 1997, whichprovided an impetus for the 19982003 programming of ADB assistance. Consequently, ADBtargeted its assistance at (i) promotion of private sector participation in the management of theColombo water system; (ii) capacity development for intersectoral planning and coordination ofwater use; and (iii) service expansion through infrastructure development in poor andunderserved areas, including unmet needs for improved sanitation. Subsequently, the 20042008 sector assistance continued with the strategic thrust of the preceding water supply and

sanitation sector operations to improve sector performance: (i) promotion of an independentregulatory body, (ii) effective decentralization of service delivery to local governments andcommunity-based organizations, (iii) financial sustainability of water supply and sanitationschemes and operating entities, (iv) integration of environmental and social aspects into sectordevelopment planning, and (v) introduction of water saving management strategies. Thesebecame key distinguishing features of ADB assistance, which combine water supply and


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Table 6: Loans and Advisory TAs Approved, 19862005

Item 19861992 19931997 19982003 20042005

Loans

Loan 817-SRI:Water SupplySector Project(approved 1986)

Loan 1235-SRI:Second WaterSupply andSanitation Project(approved 1993)

Loan 1575-SRI:Third Water Supplyand SanitationProject (approved1997)

Loan 1993-SRI:Secondary Towns andRural Community-based Water Supplyand Sanitation Project(approved 2003)

Loan 2201-SRI: LocalGovernmentInfrastructureImprovement(approved2005)

TechnicalAssistance

TA 1150-SRI:Rural WaterSupply andSanitation SectorDevelopmentPlanning(approved 1989)

TA 1486-SRI:

FinancialAccounting andReportingAssistance toNWSDB(approved 1991)

TA 1900-SRI:ManagementStrengthening ofNWSDB(approved 1993)

TA 3434-SRI:Accounting Review ofNWSDB (approved2000)

TA 4049-SRI:Strengthening theRegulatoryFramework for Water

Supply and Sanitation(approved 2002)

TA 4184-SRI: GreaterColombo WastewaterManagement SectorReview (approved2003)

NWSDB = National Water Supply and Drainage Board; SRI = Sri Lanka; TA = technical assistance.

31. Positioning and Coherence. The sector assistance during the last decade (19962005) had been relevant and responsive to (i) the Governments development objectives andpriorities, (ii) ADBs water supply and sanitation sector strategies, and (iii) aid coordination withmajor development partners. The assistance programs have followed a progressive trajectory.Although the 19931997 sector assistance had conformed to the sector strategy, the strategyitself was less coherent in its development approach and choices to tackle the sector challengesand issues. Subsequently, the 19982003 sector assistance took into account lessons fromsector/thematic reviews, and assessment of sector performance. Past project experience,particularly with the preparation of the Third Water Supply and Sanitation Project in 1997,provided valuable inputs to programming of assistance for 19982003. The sector assistanceprogram supported the thrusts of the 1998 sector strategy: (i) sector reform, (ii) institutionaldevelopment, and (iii) service expansion. The sector assistance was also strengthened withincreased ADB involvement in policy dialogues. Subsequently, the 20042005 sectorassistance was further strengthened, taking into account policy issues and experience gainedfrom the Third Water Supply and Sanitation Project


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Table 7: Evaluation Rating of the Positioning of Sector Assistance Programs

Criteria for Positioninga

Sectorprogram

SufficientBasis for

theProgram

GovernmentsAbsorptive

Capacity andOwnership

ADBsComparative

Advantage andPartnership with

OtherDevelopment

Partners

Focus/Selectivity

andSynergies

Long-TermContinuity

Constraints/Risks and

Adjustment/Monitoring

Mechanismsto Achieve

Targets

WeightedAverage ofAll Criteria

199319971998200320042008Overall

1 (PS)2 (S)3 (HS)

2 (S)2 (S)2 (S)

2 (S)3 (HS)3 (HS)

2 (S)2 (S)2 (S)

1 (PS)2 (S)2 (S)

0 (US)2 (S)2 (S)

1.33 (PS)2.17 (S)2.33 (S)1.94 (S)

ADB = Asian Development Bank, HS = highly satisfactory, PS = partly satisfactory, S = satisfactory, US =unsatisfactorya Note: HS = 3 points, S = 2 points, PS = 1 point, US = 0 point. An equal weight is applied to each of the six criteria

for positioning and coherence. The ratings are as follows: (i) HS > 2.5, (ii) 2.5 S 1.6, (iii) 1.6 > PS 0.6, and(iv) 0.6 > US.

33. Trends and Lending Program. The approved loans and TA grants for the water supplyand sanitation sector had closely followed what had been programmed over the last twodecades. By 30 September 2006, total approved lending to the sector amounted to $255.3

million for a total of five projects. Subsequently, on 29 November 2006, ADB approved twosupplementary loans for a total of $60 million for the Secondary Towns and Rural Community-based Water Supply and Sanitation Project. Loan 817-SRI: Water Supply Project (approved in1986) was the first ADB-financed project in the sector. This was subsequently followed in 1993by Loan 1235-SRI: Second Water Supply and Sanitation Project. These two projects are theonly completed projects thus far (2006) and both were rated successful at completion. By 31December 2006, there were three ongoing ADB-financed projects in the sector, the most recentof which is an integrated project (Local Government Infrastructure Improvement Project). 25 Allfive projects have been targeted to areas and populations outside Colombo, including urban andsecondary towns in the Central, South and West of Sri Lanka. In 2003, with expansion ofservices to other regions, two major subprojects (Muttur and Batticaloa) in the East wereincluded under the Secondary Towns and Rural Community-based Water Supply and SanitationProject. By September 2006, preparation was still underway for a proposed Jaffna PeninsulaWater Supply and Sanitation Project. However, the sharp escalation of armed conflict in theNorth (including Jaffna Peninsula) and East during 2006 has deferred processing and appraisalof this project.

34. ADB-financed water supply and sanitation projects have been subjected to loancovenants to ensure cost recovery. The first (Loan 817-SRI) and second (Loan 1235-SRI)projects emphasized tariff collection efficiency, reduction of unaccounted water and non-revenue water, and revisions of water tariffs to ensure recovery of operations and maintenancecosts. With the third project (Loan 1575-SRI: Third Water Supply and Sanitation Project), loancovenants began to have strong orientation towards policy reforms. Compliance with loan


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covenants had been satisfactory for the first two completed projects, except for the devolution ofresponsibilities to local authorities. However, with increased emphasis on policy reforms,compliance with loan covenants has become more problematic due to changes in governmentpolicy stance and priorities. A covenant that has not been complied with pertains to the adoptionof a policy for water resources management.26

35. Trends in Technical Assistance. By 30 November 2006, a total of six advisory TAgrants amounting to $1.8 million had been approved. Out of these six TA grants, five had beencompleted. However, only one TA has a completion report (TA 1900-SRI: ManagementStrengthening of NWSDB), which was piggybacked to Loan 1235-SRI: Second Water Supplyand Sanitation Project. One advisory TA is still outstanding (TA 4049-SRI: Strengthening the

Regulatory Framework for Water Supply and Sanitation), which was aimed to developregulations for the water sector within the framework of the Public Utilities Commission. 27However, this TA has been delayed for more than 2 years due to prolonged deliberations on theWater Services Reform Bill, which was drafted under the TA. By December 2006, this TA hadbeen reactivated with revised terms of reference for fielding consultants.

36. In the context of the policy dialogues in the late 1990s, the Government formulated anational policy for rural water supply and sanitation sector (approved in 2001), which covers thedecentralization of water supply and sanitation service delivery to local authorities throughparticipatory approaches. It also delineated the roles of public and private sectors in watersupply and sanitation delivery, stressing the role of the Government, provincial councils, andlocal government authorities as regulators and facilitators of the implementation of sectoractivities, and the role of community-based organizations and private sector as serviceproviders.28 Meanwhile, policy dialogues relating to regulatory issues are still underway. TheMinistry of Urban Development and Water Supply recently drafted a national policy on drinkingwater supply and a national policy on sanitation, the latter emphasizing the procedures,guidelines and mechanisms for planning and implementing sanitation services for both urban

and rural areas. The draft national policy on sanitation highlights the need for consensusbuilding in the development of an institutional framework for implementation of sanitationprograms. ADB, supported with advisory TA grants, has been active in pursuing policydialogues which are complementary to the pursuit of sustainable investments.

37. Factors Affecting Implementation. A key enabling factor in implementing the sectorassistance program is the performance and responsiveness of executing agencies, includingNWSDB. Since the first ADB-financed water supply project, NWSDB has progressively gainedtechnical and project implementation capacity. Another enabling factor is the sustained anduninterrupted engagement of ADB in the sector. The close coordination between ADB andexecuting agencies, and major development partners had sharpened ADBs responsiveness tothe evolving needs of the sector within the sociopolitical contexts of the country. Throughexperience and country knowledge, ADBs responsiveness contributed to generally satisfactorydesigns of interventions.29 The continuing commitment of major stakeholders in the sector hasfacilitated the implementation of the sector assistance Meanwhile major hindrances to


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the decentralization process; (ii) procedural bottlenecks, due to bureaucratic processes; (iii)overly politicized reforms processes; and (iv) escalation of armed conflict in the North and Eastwhich has delayed and interrupted project preparation and implementation since June 2006.The continuing conflict, if unabated, can pose serious development constraints and challengesto the implementation of programmed development in the affected areas. The continuing armedconflict can derail plans to reduce development disparities in the country. Developmentapproaches under the assumption of post-conflict conditions for rehabilitation and expansion ofwater supply and sanitation services may not be suitable for in-conflict situations that haveaffected parts of the North and East. Should conflict conditions persist without a credible peaceprocess to reach more stable situations, implementation of ongoing projects and programmingfor further assistance in the North and East will become increasingly difficult.

D. Assessment of ADBs Sector Strategy and Assistance Program

38. Relevance. ADBs strategy and assistance for the sector have been highly relevant tothe needs and priorities of the country, and aligned with the sector assistance provided bydevelopment partners. ADBs assistance initially focused on urban centers, but later shifted toinclude smaller towns and rural areas in late 1990s. This shift was relevant to the proclaimedpriority of the Government to meet its MDG targets in order to bridge the rural-urban gap inwater supply and sanitation services. The Third Water Supply and Sanitation Project (approvedin 1997) piloted the development of water supply and sanitation systems by local authoritiesthrough the mobilization of community-based organizations. This model has been subsequentlyexpanded under the Secondary Towns and Rural Community-based Water Supply andSanitation Project. The shift toward a broader development approach under the Third WaterSupply and Sanitation Project was responsive to the sector requirements as evidenced by theintegration of (i) reform initiatives and innovations, (ii) community level awareness campaigns,and (iii) local level participatory development in the design of the project.

39. ADB sector assistance has also addressed long-standing institutional shortcomings,which had been at the heart of ADBs 19931997 and 19982003 sector strategies. Projectshave been generally well-designed, with policy conditions covenanted through the respectiveloan agreements to ensure sustainability of the investments. In response to generally slowprogress at the reform front, projects have pragmatically focused on modest and progressivemeasures to ensure operational efficiency and financial viability of water supply and sanitationschemes. This was addressed through ongoing assistance to NWSDB to enhance its corporateplanning, and institutional strengthening of local authorities to improve operation andmanagement of the schemes which have been devolved to them.

40. Effectiveness. The sector assistance has been effective in terms of attainingoutcomes against the objectives to provide greater access to improved water supply andsanitation services. Reasonably reliable water supply services have been provided topopulations in urban and rural areas outside the Greater Colombo area. The two completedprojects have benefited 600 000 people through the rehabilitation and expansion of 27 water


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schemes faced significant stress on their distribution capacities which necessitated furtherrehabilitation and upgrading.30

41. According to NWSDB, about 1 million people in the rural areas and 0.4 million people inurban centers gained access to water supply under the Third Water Supply and SanitationProject. The ongoing Secondary Towns and Rural Community-based Water Supply andSanitation Project has targeted 969,000 people for water supply services, and 171,500 peoplein urban areas for improved sanitation. Modest gains have been achieved in institutionalstrengthening and capacity development since the first ADB-financed project. For example,NWSDB has improved its capacity to implement projects, benefiting from grant-financedassistance to develop financial reporting and management systems. However, operation and

maintenance capacity of schemes and sector development planning still face challenges. Waterresource management is generally deficient, despite a grant-financed assistance and a projectcomponent to develop comprehensive water resource management under the Water ResourcesManagement Project (Loan 1757-SRI). Nevertheless, ADB assistance has contributed tosignificant achievements in several areas. NWSDB has commenced to outsource metering,billing, and tariff collection in partnership with the private sector in Greater Colombo as part of itscost reduction and staff rationalization program. NWSDB has introduced more commercializedpractices through its 2006 corporate plan. Institutional strengthening at the local levelmeanwhile has initially progressed at a slow pace, but this has gained momentum under theThird Water Supply and Sanitation Project and Secondary Towns and Rural Community-basedWater Supply and Sanitation Project. Table 8 shows NWSDB performance for the last 5 years.

Table 8: National Water Supply and Drainage Board Performance Indicators

Indicator Definition 2002 2003 2004 2005 Q1 2006

1. Cubic Meter Billed (%)

2. Collection Rate (%)

3. Accounts Receivablesa. Private (days)b. Government (days)

4. O&M Staff to ConnectionRatio

5. Electricity Used (%)

6. Maintenance Expense(%)

7. Establishment Expense(%)

8 R h bilit ti E

Consumption/Production

Collection/Billing

Number of O&MEmployees/1,000 Connection

Total Electricity Cost/Total

O&M Expenditure

Total Maintenance Cost/TotalO&M Expenditure

Total Establishment Cost/TotalO&M Expenditure

T t l R h bilit ti C t/T t l

66

97

7.94

28

5

9

17 1

65

109

60 days65 days

7.40

29.5

5.1

9.5

11

66

110

60 days65 days

6.90

26

6.3

10.6

4 4

66

99

60 days65 days

6.61

24.05

5.65

11.13

3 96

65

91

60 days65 days

6.49

24.05

4.7

10.21

1 63


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Indicator Definition 2002 2003 2004 2005 Q1 2006

10. Net Profit (loss)(in SLR million)

11. Accumulated Loss(in SLR million)

12. Operating Ratio (%)

n.a.

n.a.

n.a.

(134.3)

(1,387.7)

79

(836.5)

(2,363.1)

92

(91.9)

(2,635.0)

76

n.a.

n.a.

n.a.n.a. = not available, O&M = operation and maintenance.Sources:(i) Corporate Planning Division, National Water Supply and Drainage Board.(ii) ADB. 2002. Report and Recommendation of the President to the Board of Directors on A Proposed Loan to the

Democratic Socialist Republic of Sri Lanka for Secondary Towns and Rural Community-Based Water Supply andSanitation Project. Manila (Financial Management and Institutional Assessment [Supplementary Appendix M]).

42. Efficiency. ADB has contributed to modest progress in sector policy developmentthrough loan covenants and institutional capacity development. The Third Water Supply andSanitation Project provided support for policy development. Recently, ADB assistance gavemore prominence to institutional development through the Secondary Towns and RuralCommunity-based Water Supply and Sanitation Project. In terms of economic returns, allcompleted projects proved to be viable, and rehabilitated systems have been maintained andfurther enhanced. For the first (Loan 817-SR1) and second (Loan 1235-SRI) projects, least-cost

options contributed to affordable water services. For the Third Water Supply and SanitationProject and the Secondary Towns and Rural Community-based Water Supply and SanitationProject, the economic internal rates of return (EIRRs) on investments were estimated atappraisal to range from 12% to 17% for the subprojects. This range of EIRRs could beachieved, assuming no major cost overruns and on time completion of projects within theexpected benefits. However, there are significant risks facing project implementation due toescalation of armed conflict (North and East), risks to doing business in the country and theireffects on project costs, and political interference. Projects had incurred cost overruns as aresult of underestimation of project costs at appraisal. For example, with the first project (Loan817-SRI), actual project costs were 18% higher than appraised costs, a situation that led to thereduction in the number of subprojects. The remaining subprojects were implemented under thesecond project (Loan 1235-SRI). The project completion report of the Second Water Supply andSanitation Project (Loan 1235-SRI) emphasized that funds for physical contingencies shouldhave been provided with more realistic recognition of cost estimation risks. Subsequently, theThird Water Supply and Sanitation Project and the Secondary Towns and Rural Community-based Water Supply and Sanitation Project also experienced substantial cost overruns. In 2006,transfer of surplus loan proceeds from another project was effected to cover cost overruns of

the Third Water Supply and Sanitation Project.31

Two supplementary loans (total $60 million)were approved in November 2006 to cover the cost overruns of the Secondary Towns and RuralCommunity-based Water Supply and Sanitation Project. Reestimated EIRR for the Third WaterSupply and Sanitation Project remained above 12% while the average EIRR for the SecondaryTowns and Rural Community-based Water Supply and Sanitation Project was reestimated at10%. Implementation delays due to procedural bottlenecks have impacted negatively on the


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of armed conflict in the North and East, inadequate feasibility assessments, and delayedapprovals of contract awards. Overall, ADBs sector assistance was assessed less efficient.

43. Sustainability. Overall, the sustainability of the outcomes derived from ADBs sectorassistance was assessed likely. Sustainability of completed and ongoing interventions to someextent depends on the commitment of stakeholders to the overall development of the sector.The financial viability of NWSDB and local authorities is a key measure of financialsustainability. Since the issuance of the national policy for rural water supply and sanitationsector in 2001 mandating the decentralization of water supply and sanitation services, capacitydevelopment has broadened beyond the strengthening of NWSDB. The two ongoing projects(Third Water Supply and Sanitation Project and Secondary Towns and Rural Community-based

Water Supply and Sanitation Project) include actions aimed at (i) strengthening the ownership ofbeneficiaries and end-users of water supply systems; (ii) strengthening the capacity of localauthorities to develop and manage such systems; and (iii) assisting beneficiaries in theiroperation and maintenance. Considerable progress has been attained at this front under theThird Water Supply and Sanitation Project and a similar design has been adopted for theSecondary Towns and Rural Community-based Water Supply and Sanitation Project. Withrespect to NWSDB, complementary measures have been introduced to improve its operationaland financial viability, albeit with moderate achievements to date. Under the Second WaterSupply and Sanitation Project, a TA ($552,000) was attached to strengthen the management of

NWSDB. This was followed by further assistance to strengthen the regulatory framework forwater supply and sanitation services to rationalize the determination of water and seweragetariffs and to encourage greater participation from the private sector in the operation,maintenance, and management of water supply and sanitation schemes. However, due tochanges in policy priorities of the Government and the current policy stance against privatizationof public utilities, reforms toward increasing the participation of the private sector havestagnated. In many quarters, privatization has been confused with public-private partnerships,and thus, the policy stance against privatization has slowed efforts to explore options for public-

private partnerships.

44. The highly politicized operating environment affecting public utility services in Sri Lankainevitably influences the water supply and sanitation operations. External interference in themanagement of water supply services at the system level is pervasive. There are cases wherewater systems are expanded beyond their technical capacities to the detriment of the systems,apparently in response to demand made by local authorities and political figures. In themeantime, there have been progress and renewed efforts to (i) improve the operational andfinancial efficiencies of NWSDB, and (ii) promote the involvement of community-based

organizations in the management and operation of small urban and rural water supply schemes.The Secondary Towns and Rural Community-based Water Supply and Sanitation Projectsupported the implementation of the NWSDBs corporate-strategy. ADB reviews biannualperformance indicators and discusses with NWSDB various means to achieve its objectives byspelling out feasible mid-term targets of NWSDB in terms of key performance parameters: (i)water supply and sanitation coverage; (ii) operational efficiency measures including targeted


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water supply and sanitation projects have achieved considerable success in physical terms andtheir functions.32 This case study serves as a proxy assessment of the effects of completedprojects. Findings from field surveys in three towns in Sri Lanka (Awissawella, Weligama, and

Diyatalawa) showed that service coverage had expanded significantly under the Second WaterSupply and Sanitation Project. Household connections in piped-schemes had increasedsignificantly while standposts in these areas were gradually phased out, which meant thatpeople had increasingly gained access to improved water sources. Quality of water was foundto be satisfactory as a result of improved water treatment capacity. However, in some areas,people expressed displeasure because of the limited hours of water supply. This situation wasreported to be particularly difficult for poor households because they could not afford topurchase and install tanks with which they could store water. This had gender implications

because unreliable water service hours prevented girls and women from engaging in otherproductive activities as they were required to spend time fetching water for their households.Consistent with findings presented in other documented case studies, sanitation was givenlower priority than water supply services, partly because of unwillingness of many households,particularly the poor to pay for sanitation and sewerage services. Visits to selected sites ofcompleted projects (Loan 817-SRI and Loan 1235-SRI) by the Operations Evaluation Mission(AugustSeptember 2006) indicated that water supply systems were generally well-maintained,and had been further upgraded following the rehabilitation under the ADB-financed projects.Household consumers were found to be generally satisfied with the water supply services,

although the water supply was not generally available for 24 hours a day. In some cases,household connections were expanded beyond the design capacities of the individual watersupply systems, and such expansions had reduced the reliability of water supply. Politicalinterference has often been cited as a major reason for the expansion of water systems beyondtheir capacity.

46. Overall Rating. Based on the evaluation criteria of relevance, effectiveness, efficiency,sustainability and impact, the overall performance of ADBs sector strategy and assistance to

the water supply and sanitation sector is rated successful (Table 9).

Table 9: Performance Ratinga of ADBs Strategy and Assistance Programto the Water Supply and Sanitation Sector

Rating Relevance Effectiveness Efficiency Sustainability Impact Overall RatingScore 3 4 1 4 4 16Rating Highly Relevant Effective Less Efficient Likely Substantial Successfula

The rating categories for the five evaluation criteria are as follows:(i) Relevance: highly relevant (3 points), relevant (2 points), partly relevant (1 point), and irrelevant (0 point).

(ii) Effectiveness: highly effective (6 points), effective (4 points), less effective (2 points), and ineffective (0 point).(iii) Efficiency: highly efficient (3), efficient (2 points), less efficient (1 point), and inefficient (0 point).(iv) Sustainability: most likely (6 points), likely (4 points), less likely (2 points), and unlikely (0 point).(v) Impact: high (6 points), substantial (4 points), modest (2 points), and negligible (0 point).(vi) Overall rating: highly successful (20 points and above), successful (1619 points), partly successful (1115

points), and unsuccessful (10 points or less).Source: ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports. Manila.


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fielded for monitoring and administrative purposes. Review missions have been generallyresponsive to emergent implementation issues that arose.

48. Interviews with government and project personnel indicated the following:

(i) ADB personnel were often unable to devote adequate time for extensivediscussions during a single review mission. Repeated missions and sustainedefforts provided continuity and strong ADB presence in the water supply andsanitation sector.

(ii) The Sri Lanka Resident Mission of ADB frequently could not directly providetimely guidance and assistance to the implementing agencies primarily because

approvals were required from ADB Headquarters. Such situations often arose inadministrative and procedural matters related to procurement and contractawards, which had caused delays in project implementation.

(iii) The time taken for mail correspondence and decision making has been cited bygovernment officials as an area for ADB to improve. Delegation of greaterresponsibilities to the resident mission was cited by government officials as apotential way to improve ADBs responsiveness and client orientation.

(iv) Overall, executing agency staff and government project personnel have foundADB to be an effective partner because of its approach in providing assistance to

the sector, which combines physical development and policy interventions aimedat aid effectiveness and sustainability of outcomes.

F. Identified Lessons

49. Several identified lessons from ADBs operations in Sri Lanka in the water supply andsanitation sector include the following. While these lessons are well-known, and some of thesehave been incorporated into ongoing and proposed projects, continued attention to these is

required for improving ADB operations in the future.

(i) While the two completed projects (which involved mainly the rehabilitation andextension of existing water supply schemes in urban centers) provided significantbenefits to the project areas through increased connections and improvedproduction capacity, they have been less focused in bridging the rural-urban gapin access to water supply.

(ii) Issues arising from competing water uses have not been addressed to datethrough an effective integrated water resource management, thus requiring a

mechanism for an effective coordination and policy discussion among users inthe future.

(iii) Extensive and thorough investigations of potential project sites need to be carriedout during project preparation and design to the extent possible to ensureappropriateness of designs. Experience shows that design shortcomings had ledto significant implementation delays


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should be budgeted because of the associated price premiums attached to riskieroperating environment.

(v) Handover of management of water schemes to local authorities and community-

based organizations require continued support during transition and follow-upperiod to ensure the sustainability of such schemes. Capacity developmentefforts need to include not only technical aspects of operations and maintenancebut also financial management, water demand management through publicawareness campaigns, and protection of water sources including waterconservation.

(vi) While tariff adjustments have been effective to some extent in recovering a largeportion of operations and maintenance costs, they are generally insufficient for

reinvestment and replacement of assets.(vii) Water tariff, as it is presently structured, is unlikely to be an effective way forlifeline support and curbing water demand among household consumers. Alifeline tariff for consumption of water of less than 15 m3 is universally applied toall consumers. There is still a high subsidization among domestic and non-domestic water users.

(viii) Traditional approach to least-cost options for planning of water supply andsanitation projects should take into account a more integrated approach,including supply and demand considerations so as to achieve a more sustainable

resource use. Water demand-side management needs to be improved especiallyin water scarce areas.

(ix) The problem of high incidence of non-revenue water can be resolved by acombination of technical remedies (i.e., pipe replacement and meter installation)and improvements in the broader managerial and organizational aspects of waterservice delivery. Benchmarking through the setting of operational performancetargets should be encouraged.

(x) Better linkage between health outcomes and water supply and sanitation should

be promoted in water project development through inclusion of sanitation,hygiene and health promotion programs in project design (this is already part ofthe Secondary Towns and Rural Community-based Water Supply and SanitationProject and the proposed Jaffna Peninsula Water Supply and Sanitation Project).Greater links and coordination with civil society organizations and governmenthealth services are needed to attain health outcomes more effectively. At thehousehold consumer level, these key dimensions to promote health outcomesare not always evident.

(xi) Community-based approach in rural water supply systems can be an effective

tool to enhance customer roles in planning and implementation of projects, andto promote greater ownership, which is an important aspect to ensuresustainability. Participation of women in decision-making can also be betterencouraged through this approach.

(xii) Adequate attention should be given to capacity development at the communitylevel to ensure greater sustainability of water facilities

23


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G. Future Challenges and Opportunities

50. Although significant improvements have been achieved over the years in the sector,

substantial amount of resources is still needed to bridge the rural-urban gap in terms of accessto safe water and adequate sanitation. For ADB as a development partner in the sector, areasto consider for future assistance may include the following. Some of these have beenincorporated into the ongoing projects.

(i) Expansion of water supply and sanitation services to underserved areas,particularly rural and conflict-affected regions through investments in physicalinfrastructures and promotion of sustainable operations and maintenance, once

more stable post-conflict situations are secured. In the meantime, small-scaleand low technology improvement measures may be considered for conflict-affected areas to increase self-reliance where large infrastructure investmentsmay not be feasible.

(ii) Continued efforts to improve self-financing performance of operating entitiesthrough the implementation of sector reforms covering issues related toregulations, cost recovery, commercial discipline of service agencies, anddomestic resource mobilization.

(iii) Continuing policy dialogue on integrated water resource management to addressissues related to competing uses of water, conflict management, and sustainablewater resources management.

(iv) Continuing support for capacity development for rural communities to enhancetechnical, managerial, and operational skills, which are required for thesustainable maintenance of small rural water supply schemes.

(v) Continuing support for awareness campaigns among users and beneficiaries tobuild confidence in the communities on the viability of water supply and sanitationschemes, and also to increase their awareness on the merits of waterconservation, and the important linkage between water supply and sanitation andhealth outcomes.

(vi) Enhancement of capacity for monitoring and evaluation of development results inthe water supply and sanitation sector.


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Appendix

CAPE PERIOD

Criteria forPositioning/Coherence

19881992Country Strategy




The sector strategy alsohighlighted the potentialparticipation of the privatesector in water supplyand sanitation and theneed to improvemanagement of publicutility enterprises.

One aspect of theapproach adopted by theGovernment and ADBthat had an impact on thewater supply andsanitation sector was thecurtailment of publicexpenditures throughrationalization ofsubsidies and publicenterprise recourse tobudget support.

improving the climatefor private investments. Inadequacy of water

supply at areas outsideColombo wasrecognized as well aspoor management andinappropriate pricingpolicies.

of water rights.Sanitation The strategy recognized

the underdeveloped stateof the sanitation sector.

There is a huge gap in theprovision of sanitationservices between urbanand rural areas.

The strategy called for

increasing institutionalcapacity and investmentin sanitation andwastewater management,especially in dense urbanareas.

(ii) Sector focus The strategy was

unclear on the directionof intervention in thewater supply andsanitation sector,although the strategyemphasized the needto strengthen theinstitutional capabilityof publicly-ownedenterprises to achieve

financial sustainabilityin their operations andmaintenance activities.

In the area of social

physical infrastructure,the major strategicchoice was not muchconcerned about thechoice of the subsectorto support, but on whichareas of the country tofocus.

The strategy recognizedthat since Colombo was

better served than otherparts of the country,assistance andinterventions would befocused on regionsoutside Colombo.

To support the projectinterventions of ADB inthe water supply andsanitation sector, policy

ADB maintained its focus

on viable secondary urbancenters and theconcomitant strengtheningneeded at the local level,as well as the policyreforms initiated under theprevious countryoperational strategy.

The sector strategy alsoemphasized support for

integrated water resourcemanagement.

In the water supply

subsector, the geographicfocus of assistance wasdirected at underservedareas particularly in theconflict-affected areas.

Emphasis was also givento sanitation which hadremained secondary towater supply developmentto date.


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Appendix

27

CAPE PERIOD






dialogues onappropriate pricingpolicy was consideredan important element ofthe sector strategy forthe medium term.Emphasis was made onthe need for frequentand systematicadjustments in tariffs toensure the financialviability of key sectorinstitutions, particularlyNWSDB.

(iii) Instruments used toaddress challenges

The countryoperational strategy didnot mention specificinstruments to addressthe needs in the watersupply and sanitation

sector. There was noreference to anyeconomic and sectorwork for the sector.

In terms of operationalinstruments, thestrategy enumeratedlending program withpolicy-orientedcovenants, advisory

technical assistanceand economic/sectorwork with particularemphasis on waterresource management.

ETSW was recognized aslacking for the sector.

Continuing policy dialoguewas also identified as akey instrument to bringabout much-needed

reforms in the sector, apartfrom the continuation oflending and advisoryassistance, if warranted.

The strategy identifiedpolicy dialogue, lending,ETSW, and advisoryassistance as theoperational modalities.

Coherence of issues, focus,and instruments

At the sector level, thecountry operationalstrategy was lesscoherent in terms of

the direction that wouldbe pursued. The issueswere not clearlyidentified without aclear focus.

To promote the povertyreduction objective ofthe Government, thestrategy accorded

importance to thecontinuance ofdevelopment andinvestments in socialphysical infrastructure,especially inunderserved ruralareas.

At the sector level, theanalysis of key issues

The choice of issues andchallenges to address andthe choice of instrumentsto be employed to address

them lent coherence to thesector strategy.

The 2004 sector strategycan be consideredcoherent and well-positioned, with evidence

of sufficient analysis of thesector needs andchallenges, and the timelyidentification of areas inwhich ADB couldpotentially play a majorrole.


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and challenges in thewater supply andsanitation sector tendedto converge at the issueof public enterpriserationalization andstrengthening, and theformulation ofappropriate frameworksfor tariff setting, whichwas considered an

endemic problem thatneeded to be resolved.

Long-term continuity of thesector strategy

Continuity of sectorstrategy was notaddressed in the 1988country operationalstrategy.

Continuity of sectoragenda was not explicitlydiscussed in the 1993country operationalstrategy.

The sector strategystressed thereconsideration of futureADB developmentassistance to the sector onaccount of the involvementof other donors in the

sector as well as theprogress of the watersupply and sanitationprojects at that time,although the strategy stillemphasized thecontinuance of ADBsupport to the sector,albeit indirectly by focusingon integrated water

resource management.

The 2004 sector strategyidentified new areas forpotential interventionalthough continuity wasnot explicitly mentioned.

Risk assessments andmonitoring mechanisms toachieve the sector strategysenvisaged results

Risks were identified atthe macro-level but therewas not sufficient analysisof risks at the sector level.

Monitoring mechanismswere not identified andaddressed in the strategy.

Risks were identified ata broader level, but notspecifically for the watersupply and sanitationsector.

Monitoring systemswere also notaddressed.

The strategy identified riskfactors for the country as awhole. It did not addressrisks that were specific tothe sector.

Performance monitoringwas established for thefirst time for the sector.

Several risks wereidentified for the countryas a whole including (i)continued politicization ofreform agenda, (ii)resurgence of civil conflict,(iii) occurrence of externalshocks that could lead to


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Key assessment criteriaincluded (i) progress ofreforms implementation,(ii) implementationperformance of sectorinvestments, and (iii)progress of institutionbuilding process.

dampened domesticeconomic conditions, (iv)possibility of failingsinternal to ADB which mayreduce the impact andefficacy of the strategy,and (v) risk that areassociated with the impactof proposed reforms onthe poor, which isconsidered unsettling.

At the sector level, thestrategy stated thatseveral benchmarks wouldbe used to monitor sectorperformance including theaccomplishments at thereform front, the extent ofprivate sector participationand the success ofongoing projects,

particularly in the ruralareas.

Overall Rating Partly Satisfactory Satisfactory Satisfactory

ADB = Asian Development Bank; CAPE = country assistance program evaluation; ETSW = economic, thematic and sector work; HS = highly satisfactory; IDA =International Development Agency; NWSDB = National Water Supply and Drainage Board, OEM = Operations Evaluation Mission; PS = partly satisfactory; S =satisfactory; US = unsatisfactory, USAID = United States Agency for International Development.Note: HS = 3 points, PS = 2 points, S = 1 point, and U = 0 point. An equal weight is applied to each of the six criteria for positioning and coherence. The ratings

are as follows: (i) HS > 2.5, (ii) 2.5 S 1.6, (iii) 1.6 > PS 0.6, and (iv) 0.6 > US.

Documents

Water Supply and Sanitation Sector Assistance Evaluation in Sri Lanka