64740 August 2011 Note Number 41 Output-Based Aid in Vietnam: Access to Piped Water Services for Rural Households | Mario Suardi I n Vietnam, achieving sustainable provision of water services for communities in rural areas has been a challenge for years. About 74 percent of the Vietnam- ese population is concentrated in rural areas, yet just 48 percent of households have access to clean water, compared with 82 percent in urban areas.1 Only 30 percent of small towns have piped water systems, and even then the propor- tion of connected households can be as low as 20 percent. Many settlements have no water systems, and during the dry season residents have to rely on polluted sources for basic household needs. This paper reviews the successful implementation and subsequent scale-up of an Output-Based Aid (OBA) Viet Tuan Tran for GPOBA scheme to provide access to safe, clean water for low- income, rural households in central and southern Vietnam, has established a track record for delivering sustainable through local communities and small private operators. services at low cost and with high customer support and satisfaction. Key to EMWF’s success is its focus on com- munities able and willing to contribute both in cash and While Vietnam’s Provincial Center for Rural Water in-kind. EMWF’s emphasis on securing community buy- Supply and Sanitation operates water systems in relatively in has been critical to ensuring sustainability and helps large settlements (600 households or more), in smaller explain its excellent track record. villages the responsibility rests with the Commune Communities’ willingness to cooperate with EMWF People’s Committees (CPCs), which often lack the also owes much to EMWF’s 20-year history of providing resources to meet community water service needs. high quality support to rural communities through its The government has had little success in these places, work in areas like health care and education, especially in mainly due to a lack of community ownership, a focus the central provinces of Quang Nam and Quang Tri. The on asset building rather than system management, and resulting political capital helped ensure community sup- tariff levels too low to cover operation and maintenance. port for the rural water projects and also translated into However, given the high consumer demand, the private supportive collaboration with government authorities at sector and non-governmental organizations have steadily every level. increased support for rural and small towns’ water supply Notwithstanding this success, before the Global by leveraging funds from fee-paying customers and in- Partnership on Output-Based Aid (GPOBA)’s involve- kind labor contributions during construction. ment, the pace of EMWF’s work in rural water was dic- tated by the availability of hard-to-predict donated funds. Providing sustainable water services This made long-term planning a challenge and deprived in rural areas EMWF of the efficiencies that more stable funding allows. Since 2007, GPOBA has provided EMWF with a secure The International NGO, East Meets West Foundation source of funds to explore the OBA approach for rural (EMWF), and its subsidiary, Reach Vietnam, have been water challenges, and so it can operate over a longer and working with local authorities and beneficiaries to develop a community-based approach to clean water Mario Suardi is a Senior Infrastructure Specialist with the Global provision for rural households for over 10 years. EMWF Partnership on Output-Based Aid. Supporting the delivery of basic services in developing countries more stable planning horizon. The OBA approach uses and reporting. EMWF bears the full responsibility and an innovative risk-sharing mechanism that enhances risks for pre-financing and implementing the project EMWF’s performance while maintaining high value and ensuring satisfactory service provision. for money and focusing on sustainability. Some responsibilities are transferred to the local authorities after works have been commissioned, in Geographic targeting accordance with the Memorandum of Understanding (MOU) that EMWF enters into for each water scheme. The GPOBA-funded project started in 2007, initially Local authorities agree to set and revise water tariffs so aiming to help the poor in five provinces of central that operation and maintenance costs are covered and Vietnam, where EMWF has been especially success- reserves for repair and possible extension are set aside. ful, gain access to improved water services. Quang The output measure for this OBA scheme is a work- Nam, Quang Tri, Quang Binh, Quang Ngai, and Thua ing household connection to safe piped water, with six Tien Hué are among the country’s poorest provinces, months of billed consumption. After independent veri- with poverty rates as high as 29 percent.2 The project fication, the GPOBA subsidy is disbursed as follows: aims to serve 75 communities, selected according to the following criteria and requirements: • 80% is disbursed once working household connec- tions are realized; • Agreement on the site is reached between EMWF • 20% is disbursed after six months of satisfactory and the concerned local authorities after consulta- service delivery. tions with beneficiary communities; • Rigorous EMWF test drilling identifies suitable For an average-size village (400 households), the water sources; total system cost—derived from a review of similar • Currently-available drinking water falls below EMWF projects between 2004 and 2006—was initially government quality standards; estimated to be US$50,800 per village. At US$127 per • The site passes the environmental screening de- connection, this compares well with current mar- veloped through the Environmental Assessment ket costs and other donor/lender water projects in Framework; Vietnam. The GPOBA subsidy was set at US$100 per • Commitment letters are signed by each beneficiary connection. The remainder was covered by contribu- household promising to contribute in-kind labor, tions from beneficiary households and local authori- cash for household connection, and regular water- ties. See Table 1, below. service payments; As a nonprofit organization, EMWF’s sole income • At least 50 percent of registered households have is from endowments. Under the GPOBA scheme, paid the deposit necessary for purchasing materials EMWF borrows money from Wells Fargo Bank to for household connections; pre-finance the construction. • Agreement on management and governance of the Tariffs in EMWF-financed systems range from system is reached and selection of either individu- VND 2,000 (US$0.12) to VND 2,500 (US$0.15) per als or a private operator to manage the future water cubic meter, roughly double the rate many govern- scheme is in progress. ment piped water systems charge, ensuring the scheme’s sustainability. Even at these levels, monthly In the first year of implementation (2008), EMWF water bills remain below 2 percent of the monthly identified 19 communes in four provinces (none yet in income of the poorest households. Quang Ngai). Poverty rates in the targeted communes, Every household wishing to connect to the water as measured by the international benchmark per capita system must sign a Commitment Letter addressed to income of below US$1.25 a day, are almost 100 percent. EMWF and the respective CPC and District People’s Committee, agreeing to pay for the distribution line to Contractual and institutional their house; to contribute labor for household con- arrangements nection and communal pipeline trenches; to pay their monthly water bill; and to participate in hygiene and In November 2007, GPOBA and EMWF entered into sanitation promotions. a Grant Agreement for US$3 million with a possibil- Due to factors beyond EMWF’s control, includ- ity of extending to US$5 million at midterm review. ing sharp price increases for construction materials EMWF is in charge of financial management, procure- and high inflation, the unit subsidy was increased to ment, compliance with safeguards, and monitoring US$140 in April 2009. Given the fixed grant amount August 2011 Note Number 41 Table 1. Cost description at project appraisal Scheme cost Total Project cost Percent of Cost description Cost per HH (400 HHs) (75 schemes) total cost EMWF pre-�nancing of construction 100 40,000 3,000,000 78.7 costs = GPOBA subsidy HH �nancial contribution 14 5,600 420,000 11.0 HH in-kind contribution 11 4,400 330,000 8.7 Value of land contribution from local authorities 2 800 60,000 1.6 TOTAL 127 50,800 3,810,000 100 HH = household; all costs in US$. (US$3 million), the number of expected beneficiaries possible. The role of the IVA, core to OBA project fell from the original 30,000 to around 22,000 house- design, helps to ensure that quality, transparency, holds. Table 2 below shows the revised distribution of and accountability are maintained at the desired project costs. levels throughout the process. As a result of lessons Despite those cost increases and severe weather in learned in the first phase, a new approach for the the target area, the project progressed well, as con- second phase in the southern provinces was proposed. firmed by the team during the midterm review in The new approach allowed for greater involvement August 2009. This led GPOBA to increase its subsidy by small-scale private operators, which would pre- to US$4.5 million, raising the number of expected finance the construction and operate new schemes beneficiary households to around 33,000. while EMWF focused on project identification and EMWF reports on progress to GPOBA quarterly, evaluation. GPOBA would pay the corresponding narrating the outputs, requested subsidy reimburse- portion of the subsidy to the private operators. The ments, and updating project monitoring indicators proposal was adopted as it aligned with a Socialization and relevant financial management information. Policy approved by the Vietnamese government which Satisfactory output is then verified by an Independent established a framework for cooperation between Verification Agent (IVA) hired by GPOBA, then public and private sectors in rural water and sanita- reported in a quarterly review with recommendations tion services. To assess the feasibility of this initiative, regarding eligible subsidy payments. The reports are the team visited two provinces in the south. carefully reviewed before the subsidy payment is made. Engaging the government early in the process, par- Figure 1 summarizes the contractual and institutional ticularly where the potential to mainstream and scale- aspects of the scheme design. up has been identified, is another key lesson gained from this experience. Vietnam’s Ministry of Agriculture Lessons learned and Rural Development (MARD) has actively followed the project’s progress, including hosting a workshop to The implementation of the rural water scheme has discuss and subsequently endorse the OBA approach as yielded some key lessons, particularly on how the a way to address rural water supply challenges. transfer of risk to the service provider motivates the The success of the project, coupled with the sup- delivery of results as quickly and cost-effectively as port of the MARD, facilitated the right environment Table 2. Revised distribution of project costs Scheme cost Total Project cost Percent of Cost description Cost per HH (430 HHs) (75 schemes) total cost EMWF pre-�nancing of construction 140 60,200 4,500,000 84.7 costs = GPOBA subsidy HH �nancial contribution 14 6,020 450,000 7.9 HH in-kind contribution 11 4,730 355,000 6.2 Value of land contribution from local authorities 2 860 65,000 1.1 TOTAL 167 70,520 5,370,000 100 Figure 1. Contractual arrangements and flow of funds Government of Vietnam & Payment National People’s Committee WB/GPOBA Ind. Verification Output Agent verification report information Province People’s Output Committee Grant Subsidy n agreement atio form por t t in tpu tio n re Ou District People’s ifica Committee EMWF: Provides t ver tpu MOU funding for water Ou schemes Output verification Commune People’s Committee Selects, al nic e manages and Selects and manages ch tanc supervises Te sis as Water Managers or Private Operator Contractors Pay for services Operate e schem Water Scheme Builds Service provision Implementation documents Flow of funds Beneficiary Beneficiary Institutional support Household Household Technical support Implementation activities Flow of information for scaling up the OBA approach—with appropriate southern provinces was forthcoming from communi- adaptation—to support the National Target Program ties and government alike. for the extension of sustainable water and sanitation As of June 30, 2011, EMWF has built 66 systems services in rural areas. The scale-up will encourage and connected 26,745 households, benefiting 133,725 private-sector participation in the construction and people. Another 10 systems are currently being devel- management of future water and sanitation schemes, oped to connect a further 5,955 households. an objective of the national Socialization Policy. The project also illustrates the importance of com- 1 As of 2004 (General Statistics Of�ce of Vietnam – Living Standard municating experiences and successes. As a result of Survey 2004). EMWF’s awareness-raising efforts about its progress 2 In 2004, when the national poverty rate was 18.1%, the Govern- on the original project, support for expansion into the ment poverty standard was VND 200,000 (US$12.5) per capita per month in rural areas. About OBApproaches OBApproaches is a forum for discussing and disseminating The case studies have been chosen and presented by the au- recent experiences and innovations in supporting the delivery thors in agreement with the GPOBA management team and are of basic services to the poor. The series focuses on the provi- not to be attributed to GPOBA’s donors, the World Bank, or any sion of water, energy, telecommunications, transport, health, other affiliated organizations. Nor do any of the conclusions rep- and education in developing countries, in particular through resent official policy of GPOBA, the World Bank, or the countries output- or performance-based approaches. they represent. To �nd out more, visit www.gpoba.org The Global Partnership on Output-Based Aid The Global Partnership on Output-Based Aid Supporting the delivery of basic services in developing countries