FOR OFFICIAL USE ONLY Report No: PAD2990 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 39.3 MILLION (US$55.0 MILLION EQUIVALENT) TO THE KINGDOM OF CAMBODIA FOR A WATER SUPPLY AND SANITATION IMPROVEMENT PROJECT MARCH 7, 2019 Water Global Practice East Asia And Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective January 31, 2019) Currency Unit = Cambodian Riels (KHR) KHR 4011.07 = US$1 SDR 0.7139 = US$1 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank AFD French Development Agency AWPB Annual Work Plan and Budget BCC Behavior Change Communication BEC Bid Evaluation Committee CARD Council for Agriculture and Rural Development CD Component Director CDIA Cities Development Initiative for Asia CEC Consultant Evaluation Committee CM Component Manager CMU Component Management Unit COA Chart of Accounts CPF Country Partnership Framework CQS Selection Based on the Consultants’ Qualifications CWA Cambodia Water Supply Association DA Designated Account DAF Department of Accounting and Finance DALY Disability-Adjusted Life Year DFAT Australian Department of Foreign Affairs and Trade DIH Department of Industry and Handicraft DoF Department of Finance DPS Department of Planning and Statistics DPWT Department of Public Works and Transport DTPM Department of Technical and Project Management ECOP Environmental Code of Practice EHS Environmental Health and Safety ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan EU European Union FM Financial Management FMM Financial Management Manual FSM Fecal Sludge Management GDP Gross Domestic Product GDPWS General Department of Potable Water Supply GGGI Global Green Growth Institute GHG Greenhouse Gas GMAG Gender Mainstreaming Action Group GMAP Gender Mainstreaming Action Plan GRS Grievance Redress Service IC Individual Consultant ICR Implementation Completion and Results Report IFR Interim Unaudited Financial Reports IPF Investment Project Financing IPPF Indigenous Peoples Planning Framework IRR Internal Rate of Return JICA Japan International Cooperation Agency JMP WHO/UNICEF Joint Monitoring Program M&E Monitoring and Evaluation MDG Millennium Development Goal MEF Ministry of Economy and Finance MFD Maximizing Finance for Development MIH Ministry of Industry and Handicraft MOH Ministry of Health MPWT Ministry of Public Works and Transport MRD Ministry of Rural Development NBC National Bank of Cambodia NCB National Competitive Bidding NCDD-S National Committee for Sub-National Democratic Development Secretariat NGO Nongovernmental Organization NPV Net Present Value NSDP Cambodia National Strategic Development Plan NSFSN National Strategy for Food Security and Nutrition O&M Operation and Maintenance PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit POM Project Operation Manual PPSD Project Procurement Strategy for Development PRC Procurement Review Committee PST Project Support Team QCBS Quality- and Cost-Based Selection RGC Royal Government of Cambodia RFB Request for Bid RFQ Request for Quotation SAF Social Accountability Framework SC Steering Committee SCD Systematic Country Diagnostic SDG Sustainable Development Goal SERF Shadow Exchange Rate Factor SIAAP Syndicat Interdépartemental pour l'Assainissement de l'Agglomération Parisienne (Interdepartmental Syndicate for the Sanitation of the Paris Urban Agglomeration) SMCD Sewerage Management and Construction Department SOP Standard Operating Procedure STEP Systematic Tracking of Exchanges in Procurement SUN Scaling up Nutrition SWTPU Sewer and Wastewater Treatment Plant unit TA Technical Assistance TOR Terms of Reference UNICEF United Nations Children’s Fund USAID U.S. Agency for International Development WASH Water, Sanitation, and Hygiene WHO World Health Organization WFP World Food Programme WSMS Water Supply Monitoring System WSS Water Supply and Sanitation Regional Vice President: Victoria Kwakwa Country Director: Ellen A. Goldstein Senior Global Practice Director: Jennifer J. Sara Practice Manager: Takuya Kamata Task Team Leader(s): Fook Chuan Eng, Phyrum Kov The World Bank Water Supply and Sanitation Improvement Project (P163876) TABLE OF CONTENTS DATASHEET ................................................................................. Error! Bookmark not defined. I. STRATEGIC CONTEXT ...................................................................................................... 7 A. Country Context................................................................................................................................ 7 B. Sectoral and Institutional Context .................................................................................................... 8 C. Relevance to Higher Level Objectives............................................................................................. 11 II. PROJECT DESCRIPTION.................................................................................................. 13 A. Project Development Objective ..................................................................................................... 13 B. Project Components ....................................................................................................................... 14 C. Project Beneficiaries ....................................................................................................................... 17 D. Results Chain .................................................................................................................................. 18 E. Rationale for Bank Involvement and Role of Partners ................................................................... 19 F. Lessons Learned and Reflected in the Project Design .................................................................... 19 III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 20 A. Institutional and Implementation Arrangements .......................................................................... 20 B. Results Monitoring and Evaluation Arrangements......................................................................... 21 C. Sustainability................................................................................................................................... 21 IV. PROJECT APPRAISAL SUMMARY ................................................................................... 22 A. Technical, Economic, and Financial Analysis .................................................................................. 22 B. Fiduciary.......................................................................................................................................... 25 C. Safeguards ...................................................................................................................................... 26 V. KEY RISKS ..................................................................................................................... 29 VI. RESULTS FRAMEWORK AND MONITORING ................................................................... 30 ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN ................................... 48 ANNEX 2: DETAILED PROJECT DESCRIPTION ......................................................................... 65 ANNEX 3: ECONOMIC AND FINANCIAL ANALYSIS ................................................................. 76 ANNEX 4: MAP OF PROJECT LOCATION ................................................................................ 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Cambodia Water Supply and Sanitation Improvement Project Project ID Financing Instrument Environmental Assessment Category Investment Project P163876 B-Partial Assessment Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [ ] Series of Projects (SOP) [ ] Fragile State(s) [ ] Disbursement-linked Indicators (DLIs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) Expected Approval Date Expected Closing Date 28-Mar-2019 28-Jun-2024 Bank/IFC Collaboration No Proposed Development Objective(s) The Project Development Objective (PDO) is to increase access to piped water supply and improved sanitation services and strengthen the operational performance of service providers in selected towns and/or communes. Components Component Name Cost (US$, millions) Page 1 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Component 1: Provincial water supply 32.00 Component 2: Provincial sanitation improvement 25.50 Organizations Borrower: Kingdom of Cambodia Implementing Agency: Ministry of Industry and Handicraft Ministry of Public Works and Transport PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 57.50 Total Financing 57.50 of which IBRD/IDA 55.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Development Association (IDA) 55.00 IDA Credit 55.00 Non-World Bank Group Financing Counterpart Funding 2.50 Borrower/Recipient 2.50 IDA Resources (in US$, Millions) Credit Amount Grant Amount Guarantee Amount Total Amount National PBA 55.00 0.00 0.00 55.00 Total 55.00 0.00 0.00 55.00 Expected Disbursements (in US$, Millions) Page 2 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) WB Fiscal Year 2019 2020 2021 2022 2023 2024 2025 Annual 0.31 2.52 4.52 9.36 14.31 15.57 8.42 Cumulative 0.31 2.83 7.35 16.70 31.01 46.58 55.00 INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Water Health, Nutrition & Population Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Gender Tag Does the project plan to undertake any of the following? a. Analysis to identify Project-relevant gaps between males and females, especially in light of Yes country gaps identified through SCD and CPF b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or Yes men's empowerment c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ Moderate 2. Macroeconomic ⚫ Moderate 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Moderate 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Substantial 7. Environment and Social ⚫ Moderate Page 3 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) 8. Stakeholders ⚫ Low 9. Other 10. Overall ⚫ Substantial COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 ✔ Performance Standards for Private Sector Activities OP/BP 4.03 ✔ Natural Habitats OP/BP 4.04 ✔ Forests OP/BP 4.36 ✔ Pest Management OP 4.09 ✔ Physical Cultural Resources OP/BP 4.11 ✔ Indigenous Peoples OP/BP 4.10 ✔ Involuntary Resettlement OP/BP 4.12 ✔ Safety of Dams OP/BP 4.37 ✔ Projects on International Waterways OP/BP 7.50 ✔ Projects in Disputed Areas OP/BP 7.60 ✔ Legal Covenants Sections and Description Remedies of the Association (ARTICLE IV, Para 4.01 of Financing Agreement): The Additional Event of Suspension consists of the following, namely, the Regulation on Determination of the Water Tariff has been amended, suspended, abrogated, repealed or waived so as to effect materially and adversely the ability of the Recipient to perform any of its obligations under this Agreement. Page 4 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Sections and Description Institutional Arrangements (Section I.A.2(a), Schedule 2 of Financing Agreement): The Recipient shall establish, not later than three (03) months after the Effective Date, and thereafter maintain a Steering Committee, chaired by a senior official of MPWT and including representatives of MPWT, MIH, MOH, MRD, MEF, NCDD-S, and other relevant ministries and agencies involved in the implementation of the Project, which shall be responsible, inter alia, for: (i) monitoring the overall progress of the Project and providing strategic guidance on its implementation and the achievement of its objectives; and (ii) facilitating coordination of Project activities, policy discussions among the members of the committee, and removal of any obstacles to the timely and effective implementation of the Project; and (2) to this end, ensure that the Steering Committee shall meet at least once every six (06) months during the implementation of the Project. Sections and Description Institutional Arrangements (Section I.A.2(b), Schedule 2 of Financing Agreement): The Recipient shall maintain a Component Management Unit within MIH, to be responsible, inter alia, for carrying out Part 1 of the Project’s day- to-day implementation and management, preparation of relevant Annual Work Plans and Budgets and procurement plans(s), monitoring and evaluation, and management of relevant environmental and social safeguards with the oversight of the IRC / MEF on any resettlement matters. Sections and Description Institutional Arrangements (Section I.A.2(c), Schedule 2 of Financing Agreement): The Recipient shall maintain a Component Management Unit within MPWT to be responsible, inter alia, for: (i) overall Project coordination, including arrangement for Project audits, and consolidation of Project reports; and (ii) for carrying out Part 2 of the Project’s: day-to-day implementation and management, preparation of relevant Annual Work Plans and Budgets and procurement plan(s), monitoring and evaluation, and management of relevant environmental and social safeguards with the oversight of the IRC / MEF on any resettlement matters. Sections and Description Project Operational Manual (Section I.B, Schedule 2 of Financing Agreement): The Recipient shall ensure that the Project is carried out in accordance with the arrangements and procedures set out in the Project Operation Manual (provided, however, that in the event of any conflict between the arrangements and procedures set out in the Project Operation Manual and the provisions of this Agreement, the provisions of this Agreement shall prevail) and shall not amend, abrogate or waive any provision of Project Operation Manual unless the Association has provided its prior approval thereof in writing. Sections and Description Annual Work Plan and Budget (Section I.C.1 and 2, Schedule 2 of Financing Agreement): The Recipient shall prepare and furnish to the Association for its no-objection not later than November 30 of each Fiscal Year during the implementation of the Project (or such later date as the Association may agree), an Annual Work Plan and Budget (“AWPB”) for each Respective Part of the Project as approved by the MEF, containing relevant Project activities and expenditures proposed to be included in the Respective Part of the Project in the following Fiscal Year, and shall ensure that the Project is implemented in accordance with the AWPB accepted by the Association for the respective Fiscal Year. Sections and Description Page 5 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Safeguards (Section I.D.1(a), Schedule 2 of Financing Agreement): The Recipient shall ensure that the Project is carried out with due regard to appropriate health, safety, social, and environmental standards and practices, and in accordance with the Safeguards Instruments. Sections and Description Mid-term Review (Section II.B, Schedule 2 of Financing Agreement): The Recipient shall on or about the date thirty (30) months after the Effective Date, prepare and furnish to the Association a mid-term report, in such detail as the Association shall reasonably request, review with the Association such mid-term report, on or about the date forty- five (45) days after its submission, and thereafter take all measures required to ensure the continued efficient implementation of the Project and the achievement of its objectives, based on the conclusions and recommendations of the mid-term report and the Association’s views on the matter. Conditions Page 6 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) I. STRATEGIC CONTEXT A. Country Context 1. In 2015, Cambodia reached a lower-middle-income status following two decades of sustained growth averaging 7.6 percent per year. Future growth is expected to be more constrained by a host of economic, human capital, and public administration challenges. Recent pro-poor growth is reflected in the official estimates of poverty rate falling from 47.8 percent in 2007 to 13.5 percent in 2014. However, most of those escaping poverty remain just above the poverty line.1 Inequity in access to basic services (including water and sanitation) between the poor and the non-poor remains pronounced. Shielding the near-poor population from shocks and providing them with improved basic services is an important priority for sustained poverty reduction. 2. Cambodia’s level of urbanization of 21 percent of its 15. 4 million people (2014) is low2 and far below other countries with similar gross domestic product (GDP) per capita, suggesting that rapid urbanization may be expected in the coming years. Urban growth is projected at 2.5 percent annually in the next 35 years,3 compared to the current overall population growth of about 1.6 percent.4 The bulk of current urbanization is occurring in Phnom Penh and other main provincial towns. However, smaller towns such as district centers (many currently characterized as rural) are also expected to grow significantly to reach population densities requiring higher levels of infrastructure and basic service. There is significant risk that negative externalities because of rapid but unplanned urbanization could hamper growth. 3. Climate change vulnerability could also negatively affect growth. Cambodia ranked as the 8th most disaster-prone country by the United Nation’s World Risk Index (2015). Most disasters were water- related hazards whereby 65 percent of the total number of disasters that occurred in 1980–2011 were related to flood followed by drought (22 percent). The scale of impacts from flood and drought was also huge, respectively, affecting 62 percent and 37 percent of the population.5 Vulnerability to floods and droughts on a seasonal basis is considered by the government to be a key driver of poverty. Increased intensity of rainfall during monsoon seasons, coupled with rising sea levels can further exacerbate vulnerability to floods. By the 2060s, the mean annual temperature is projected to rise across Cambodia by 0.7–2.7°C, exacerbating vulnerability to droughts. Based on the scenario of a 2°C temperature rise by 2050, estimates suggest that, without any adaptation measure, climate change could reduce Cambodia’s projected annual GDP growth rate by about 1.5 percentage point by 2030 and 3.5 percentage point by 2050.6 Climate change coupled with rapid urbanization are also expected to negatively affect the quality and availability of water resources. 1 World Bank. 2017. Cambodia Poverty Reduction, Draft Cambodia Poverty Update Report. 2 World Bank. 2017. Urban Development in Phnom Penh, Cambodia. 3 Ibid. 2 4 United Nations Statistics Division. 2016. World Statistics Pocket Book. 5 http://open_jicareport.jica.go.jp/pdf/1000023400.pdf. 6 RGC. 2014. Analysis and Recommendations for a Cambodia Climate Change Financing Framework. Cambodia Page 7 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) 4. Malnutrition is a persistent human development challenge with the economic loss because of child stunting estimated at nearly US$130 million per year.7 The prevalence of child stunting (low height- for-age) in 2014 was 32.5 percent, which is ‘high’ according to the World Health Organization (WHO) public health thresholds. Stunting is largely caused by chronic undernutrition and is rooted in poverty, deprivation, and inequality. Cambodian children in the bottom quintile are twice as likely to be stunted compared to those in the wealthiest quintile. Stunting is associated with poor human capital formation and is linked to lower cognitive and productive potential as an adult. The factors contributing to malnutrition and stunting are multifaceted. Inadequate nutrient intake and diseases are immediate determinants. Chronic or acute exposure to environmental pathogens is a key link between inadequate water, sanitation, and hygiene (WASH) and child undernutrition.8 See Annex 2 for additional information on malnutrition and donors’ responses to the issue. B. Sectoral and Institutional Context 5. The Sustainable Development Goals (SDGs) on clean water and sanitation present a huge challenge to Cambodia in accelerating access, reducing disparity, and increasing quality of service. In 2015, access to improved water supply and sanitation (WSS) in Cambodia were 75 percent and 49 percent, respectively.9 Cambodia has achieved its Millennium Development Goals (MDGs) for water supply and made progress toward the sanitation target.10 However, disparities between the poorest and richest populations are evident. In urban areas, access rates for improved water supply were 78 percent for the poorest and 99 percent for the richest, while figures for improved sanitation were 36 percent and 100 percent, respectively.11 Compared to the MDGs, the SDGs include the additional need to progressively address inequalities, achieve universal access by 2030, and achieve higher level than basic services, that is, safely managed sanitation and water supply.12 Only 24 percent of the population has access to safely managed water supply in 2015.13 The provision of safe piped water into household premises and the effective management of wastewater (particularly in urban areas) will contribute significantly toward achieving the SDGs. However, low piped water coverage and the lack of wastewater infrastructure and adequate associated management systems present a huge challenge to the timely achievement of the SDGs. 6. The lack of access to WSS services poses a disproportionate burden on women and girls. A current gender gap analysis14 suggested that while women, as part of performing household chores and 7 CARD (Council for Agriculture and Rural Development), UNICEF (United Nations Children’s Fund), and World Food Programme (WFP). 2013. The Economic Consequences of Malnutrition in Cambodia: A Damage Assessment Report. 8 Even where exposure to pathogen loads are low and may not lead to diarrhea, chronic intestinal inflation (environmental enteric dysfunction) may be triggered with negative and lasting impacts to a body’s nutrient absorption capacity. 9 WHO/UNICEF Joint Monitoring Program (JMP) 2017 (Updated July 2017). Note: Improved sanitation refers to improved sanitation which is not shared. If shared latrine is included, the figure would be 57 percent. 10 According to the WHO/UNICEF JMP. 11 WHO/UNICEF JMP 2015. 12 Safely managed water service is defined as an improved drinking water source which is located on premises, available when needed, and free from fecal and chemical contamination. Safely managed sanitation service is defined as improved sanitation facility which is not shared with other households and where excreta are safely disposed in situ or transported and treated off- site. 13 WHO/UNICEF JMP 2017. Note that the estimate for safely managed sanitation is not available. 14 Gender Gap Analysis for Water Supply and Sanitation Project conducted by the World Bank in August 2018. Page 8 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) hygiene practices, are the potential principle users of water when piped water supply is available at home, a formal mechanism for women to provide feedback to service providers does not exist yet. More importantly, women are underrepresented among the owners (in the case of private water suppliers) and staff of water supply service providers. Among the public water service providers consulted,15 professional female staff (unskilled labor not included) make up only 13 percent on average of total staff. According to the gender analysis, this is because of gender stereotyping and lack of enabling environment for women to work in water supply services. Experiences of current female staff in water supply service providers prove that technical training and understandings from colleagues could help them stay in their career. Actively engaging women in participating in a formal mechanism for feedback and helping water service providers increase the number of female staff could strengthen women’s voice on service quality and potentially improve the quality of service provision. The findings from the analysis also indicated that women who do not have access to piped water supply at home are largely responsible for securing water supply for household use, including collecting water from distant sources or buying water from private vendors. This negatively affects the time available to engage in income-generating or family care activities. As data on time savings and time use allocation from household water supply connections are unavailable in Cambodia, this will be collected as a baseline and comparator for project impact at the time of project completion. 7. Only 21 percent of people have piped water supply16 which is concentrated in larger towns. Phnom Penh is well covered with piped water supply, while Siem Reap City and a handful of provincial and district towns have limited coverage ratios of 13–55 percent. These water supply systems are operated by autonomous water authorities in Phnom Penh and Siem Reap City and public waterworks departments in the rest of the country. The lack of public funding has spurred a significant growth of domestic private sector financed, constructed, and operated small-scale piped water supply in many smaller settlements. As of 2018, there are more than 300 such schemes, of which 247 are licensed by the Government. There are gap areas that appear suitable for piped water supply services (either as expansion from adjacent schemes or as new schemes) but currently have no public funding nor private interests to provide these services. These gap areas are geographically spread across the country, and the Government is beginning to focus on these areas to close the gaps. The sector also lacks a sector-wide investment and financing road map to facilitate investment prioritization. 8. Only 41 percent of people receive some form of sanitation service and 11 percent of households are connected to a sewerage network.17 Even where wastewater is collected, only a small portion is treated. Currently, only Siem Reap City, Preah Sihanouk Ville and Battambang provincial town have wastewater treatment facilities. Because of the lack of financial resources (including low revenue collection) and capacity constraints, the facilities and networks have inadequate operation and maintenance (O&M) and have fallen into disrepair in some areas. In Siem Reap City, a main trunk sewer damaged in 2014 remains unrepaired, severely limiting wastewater reaching the treatment plant. In non- sewered areas (including rural areas), there is usually heavy reliance on on-site sanitation facilities (for example, septic tanks, lined and non-lined pits, and overhanging latrines). Improper fecal sludge management (FSM) leads to wastewater being discharged into the subsoil or to surrounding water bodies 15 The consultations were held with Mondul Kiri Waterworks, Stoung Waterworks, and Battambang Waterworks. 16 WHO/UNICEF JMP, updated July 2017. 17 Ibid. 16 Page 9 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) potentially creating a public health hazard. In Siem Reap City, only 16 percent of the contained fecal sludge is safely emptied and transported to the treatment plant. 9. Cambodia’s water and sanitation institutions are ill equipped to face the emerging challenges posed by climate change. There are limited financial resources, institutional capacity, and readiness to respond to climate impacts. Water sources are potentially affected by drought and flood in terms of quantity and quality. Recurrent floods in some areas such as in Siem Reap City have overwhelmed the drainage and wastewater infrastructure, causing physical damage and pollution from the overflow of the combined drainage and wastewater system,18 and led to storm water overload in the wastewater treatment plant. Yet, the systematic inclusion of climate risk assessments is not a common practice for feasibility studies, engineering design, and operational procedures to adapt to, and reduce the risk from, climate-related impacts. 10. The institutional mandates for WSS are fragmented under multiple ministries. The Ministry of Industry and Handicraft (MIH) is responsible for the oversight and monitoring of public urban piped water services and private water operators.19 The Ministry of Rural Development (MRD) is responsible for rural water provision (other than private water operators) and rural sanitation with predominant focus on on- site sanitation and hygiene practices. The Ministry of Public Works and Transport (MPWT) is responsible for urban sewerage and wastewater systems. The responsibility for urban non-sewered wastewater, including the regulation and management of sludge from septic tanks, is not clear. The Ministry of Environment monitors the quality of effluents discharged into natural water bodies. 11. A National Policy on WSS was enacted in 2003 but has not been successfully implemented in full, partly because of institutional fragmentation challenges. Instead, key water supply elements from this policy and other policy, strategy, and regulation developed since then are included into the Cambodia National Strategic Development Plan (NSDP) 2014–18. These elements form the basis for the Government’s reform agenda for water supply, which focuses on (a) improving legal and regulatory framework that is conducive for private investment in the water sector; (b) decentralizing service delivery to subnational level; (c) progressively corporatizing all public waterworks into state-owned enterprises through improving operational performance and transferring autonomy; (d) increasing sector financing, including encouraging private sector financing and investment; and (e) promoting equitable access. This agenda is reinforced by a tariff regulation policy which sets out the requirement for cost recovery in piped water supply operations. Meanwhile, an urban sanitation strategy for the entire country does not exist yet. There is ongoing effort in preparing a regulatory and legal framework for urban wastewater and sewerage, including defining clear roles and responsibilities of relevant institutions in the management of wastewater from national to subnational levels.20 However, the coordination between urban water supply and urban sanitation, including coordination at the inter-ministerial level and between service providers, remains weak. The institutions responsible for urban water supply and urban sanitation have recently been set up in late 2016 in the MIH and MPWT, respectively, indicating the Government’s increased 18 A study by IRC/WaterAid focusing on urban areas looked at the exposure pathway of fecal contamination in Siem Reap City and found that floodwater is one of the main pathways for fecal exposure, with children having the highest doses of exposure. 19 For private water operators, the MIH has taken the role of receiving applications and issuing licenses for private operators to develop and operate water supply schemes in areas that are not covered by public water service providers. 20 This is focused on wastewater and sewerage systems, while city-wide sanitation approaches, that is, the concept of improving sanitation on a city-wide basis, rather than looking at individual communities or technologies/projects is some way off. Page 10 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) attention and commitment to addressing urban WSS issues. Considering the country’s fast development in recent years, the urban WSS sector needs coherent strategies to be accompanied by an investment plan that sets directions for the future of the sector. 12. The Bank’s support to the urban water supply sector mainly focuses on strengthening the enabling environment and participation of the private sector in water service provision. Given the prominent role of the private sector in water supply in Cambodia, the Bank has been providing technical assistance (TA) to support the development of the private sector water industry in Cambodia21. The TA supported strengthening the Government’s role in performing effective regulatory functions through supporting the preparation of the licensing regulation stipulating the obligations for water operators, the tariff regulation specifying cost-recovery of investment, and the monitoring system enabling the MIH to monitor the performance of water operators. In addition, TA has also provided capacity building for professionalizing private water operators. The development of provincial water supply investment plans will also be supported, to scope the water supply investment needs for the provinces including potential for public and private investment. See box 2.1 in Annex 2. 13. Development partners’ support to the sector is numerous but with little coordination. There are recent efforts to revive or convene regular stakeholders’ meetings. In water supply, the Asian Development Bank (ADB), Japan International Cooperation Agency (JICA), Japan-ASEAN Integration Fund, European Union (EU), and French Development Agency (AFD) have focused on financing the expansion of the water production capacity and service provision in Phnom Penh, Siem Reap City, and a number of provincial and district towns operated by public service providers. The AFD, the Australian Department of Foreign Affairs and Trade (DFAT), and the Bank are supporting the provision of piped water supply services through the private sector. The AFD focused on providing access to finance for private water operators to expand their network within their licensed areas, while the DFAT’s program provided a viability gap grant to private operators focusing on new and unlicensed operators. The urban sanitation sector is actively supported by the ADB, JICA, AFD, Korean International Cooperation Agency, and Global Green Growth Institute (GGGI). Box 2.1 in Annex 2 provides a more detailed discussion of development partner engagement in the sector. Although the sector has received support from various partners, to some extent, coordination only exists at the project level. There has been little coordination at the strategic level where sector agenda including sector vision, strategy, and directions could be meaningfully discussed. Recognizing the importance of coordination, urban water supply stakeholders’ meetings have recently been reconvened by the MIH. The MPWT is also in the process of setting up a separate wastewater working group as a platform for coordination. The Bank has been and will continue to be a key partner in these stakeholder groups. C. Relevance to Higher Level Objectives 14. The project is in line with the Government’s vision and overall development strategy for the country as encapsulated in its five-year Rectangular Strategy Phase IV22 and other national 21 The support was provided through the completed TA on Strengthening Sustainable Water Supply Services through Domestic Private Sector Providers in Cambodia (P132172). Follow-on support is provided under ongoing TA on Cambodia Improving Rural Water and Sanitation Services (P161075). 22 This is the Government’s overarching strategy developed for every five years. This strategy is formulated once the Government is formed after each election. The Rectangular Strategy Phase IV was adopted in September 2018. The implementation of the strategy will be done through the NSDP 2019-2023 which is currently being prepared. Page 11 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) plans/strategies. The Rectangular Strategy Phase IV recognizes increase in access to water supply and sanitation among the development objectives for sustainable and inclusive development. The project will directly support the water sector reform agenda, as described in paragraph 11, in particular, promoting equitable access, supporting the improvement of decentralized service delivery, and encouraging the mobilization of private sector finance. The project will apply social accountability instruments, including information for citizens on service standards, citizen monitoring through scorecards, and joint action plans. This supports the National Program for Sub-National Democratic Development aimed at strengthening the responsiveness of public sector service providers to citizens. The project also supports the National Strategy for Food Security and Nutrition (NSFSN) 2014–2018, which emphasizes the multisectoral nature of malnutrition requiring a multisectoral approach to address stunting in the country. Increasing access to water and sanitation services and improving behavior related to hygiene practices are among the objectives highlighted in the NSFSN. The project is well placed to contribute to climate change policies and measures, as outlined in Cambodia’s Intended Nationally Determined Contribution which indicates climate change effects on reducing the availability of drinking water. Finally, the project will help promote gender by supporting the MIH’s Gender Mainstreaming Action Plan (2015–2018) which aims to increase access to safe water for poor women, widows, and female-headed households while also promoting women to have better access to employment in water sector, including more decision-making positions. 15. The project is consistent with the Systematic Country Diagnostic (SCD) (Report No. 115189-KH, FY17) and the upcoming Country Partnership Framework, FY19-23. The SCD outlines three development pathways to address the development challenges of sustaining growth and achieving poverty reduction and shared prosperity. These pathways are (a) increasing economic competitiveness and diversification to sustain strong growth and create jobs; (b) building human assets to facilitate economic mobility and shared prosperity; and (c) ensuring a sustainable growth pattern by investing in natural capital, climate resilience, and urban development. The SCD also highlighted that the lack of access to WASH in Cambodia is among the major contributors to child undernutrition, including stunting. By improving water and sanitation services, the project can indirectly address early childhood development by decreasing the likelihood of disease and poor nutrient absorption, thereby improving nutritional status among children, and building human assets (pathway (b), above). It also contributes to pathway (c) through building more resilient WSS infrastructure and management capacity to withstand the climate change effects and support resilient urban development. The key project tenet of expanding the provision of WSS services to areas that are currently unserved contributes to the Bank’s twin goals of reducing poverty and ensuring shared prosperity. It does so by enabling poor households to have access to clean piped water supply for drinking and other hygiene practices and reducing pollutant loads into surrounding environment which positively contribute to reduction of disease burden. The development of screening mechanisms aimed at identifying the means to crowd-in private sector financing in areas currently without any infrastructure financing contributes to the Bank’s Maximizing Finance for Development (MFD) effort. The new Country Partnership Framework (CPF), covering 2019-2023, is currently under preparation. Access to water supply and sanitation and promoting state efficiency are among key areas of focus in the upcoming CPF. 16. As part of the Bank’s lending reengagement in the sector, the project will aim in the first instance to complement ongoing and planned Government and development partners support programs.23 For water supply, the target locations will focus on the gap areas for piped water supply, as 23 This includes the Bank’s ongoing non-lending TA to the Cambodian water sector (P161075). Page 12 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) described in paragraph 7. In the selected main provincial and district towns, the project will support the expansion of existing service provision to adjacent areas to increase the coverage of safe water supply on the one hand and improve the efficiency and sustainability of service providers on the other. For sanitation, the key focus is to vastly improve the functionality of the existing sewerage system, as discussed in paragraph 8, by enabling direct connection and collection of wastewater from households. 17. While complementing ongoing programs, the project will emphasize the Bank’s value-added contribution by adopting MFD, pro-poor, nutrition-sensitive, enhanced social accountability, and climate resilience approaches. Given the historical involvement of the private sector in the water supply sector (paragraph 7), MFD is embedded in, and supported by, the project. In areas which appear suitable for new small-scale piped water supply, the project will undertake systematic efforts to identify reasons for the lack of private sector interest, with a view of using project support to create the enabling infrastructure and/or environment to attract private sector financing. Those gap areas where the project will focus could potentially be more challenging or riskier for private investment, requiring proper risk assessments and identification of risk-sharing mechanisms for attracting private sector. The project will also emphasize pro-poor and nutrition-sensitive approaches, developing mechanisms to target safe water provision to poor households and households with young children (under 2 years),24 and communication programs with common water, health, nutrition and hygiene messaging. Where possible, the project will prioritize district towns identified to be suitable for piped water supply investments which are in provinces25 receiving intensive nutrition support through the Bank’s Cambodia Nutrition Project (P162675) currently under preparation. Social accountability tools will be introduced to allow citizens to provide feedback on the quality of WSS services. To enhance the project beneficiaries’ resilience to floods and droughts, the scheme design will include assessment of the sustainability of water sources (including catchment protection) and development of alternative water sources. Moreover, an optimal design for climate resilience of infrastructure, energy efficiency through optimal sizing of pumps, and reduction of pollution in flooding events by separating wastewater from storm water will be pursued. II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement 18. The PDO is to increase access to piped water supply and improved sanitation services and strengthen the operational performance of service providers in selected towns and/or communes. 24 During the first 1,000 days between conception and two years of age conception, early life nutrition sets the trajectory for an individual’s growth, cognition, and long-term health. For practical implementation purposes, the project’s nutrition-sensitive targeting will focus on households where there are children under two years to ensure that those children benefit from better water supply. 25 Ratanak Kiri, Mondul Kiri, Preah Vihear, Kratie, Stung Treng, and Kampong Chhnang provinces. Page 13 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) PDO Level Indicators 19. The PDO indicators will reflect the specific outcomes that the project is aiming to achieve. The specific PDO-level indicators are proposed to be the following: (a) Number of people provided with access to improved water sources through piped household water connections in target areas (male/female, poor26/non-poor, young children27) (b) Number of people provided with access to improved sanitation services through connection to sewer network under the project in Siem Reap City (male/female) (c) Percentage of selected water supply service providers achieving operational cost recovery28 (d) Percentage of operational costs of Siem Reap Sewerage and Wastewater Treatment Plant Unit to be covered by revenue collected from customers B. Project Components 20. The proposed project has two components: (a) to support provincial water supply in selected towns and communes and (b) to support provincial sanitation improvement in Siem Reap City. Each component is in turn subdivided into an infrastructure investment subcomponent and an associated institutional strengthening, policy, and project implementation subcomponent. Component 1: Provincial Water Supply (IDA – US$30.5 million; RGC – US$ 1.5 million) 21. This component is focused on supporting the expansion of water supply services to selected towns and communes. It will support public provincial water service providers in selected main provincial towns to augment and expand water distribution networks to serve more customers (including developing additional water production facilities as needed) and health and school facilities within the service area. This component will also support the development of small-scale piped water supply systems in selected communes outside the main provincial towns that are not yet served but where the population has reached the size and density suitable for piped water supply. While the project will finance the necessary elements of the water supply systems in those areas, private sector financing and operations of small- scale piped water supply systems will be explored and leveraged where technically, economically, and financially feasible.29 Building on the Bank-executed TA (see paragraph 12), the project will help develop a mechanism to screen proposed small-scale piped water supply systems in communes; consider options for private and/or public financing, operations, and management; and then develop designs as 26 Poor households are identified through the government system for identification of poor households. The system defines poor households in two categories, ID-poor 1 and ID-poor 2, using community-driven proxy means testing. See also http://www.idpoor.gov.kh/en/home. 27 This will be monitored using the number of households with children under two years gaining access to piped water supply. 28 Operational cost recovery is where operating revenue from tariff and other services (if any) could cover operating cost. 29 It is expected that the most profitable areas would have been taken by the private sector, where further extension and development are supported by other development partners such as the AFD through an access-to-finance program and the DFAT through commercial viability gap grants. The remaining areas that the project will look into are expected to be more challenging areas where the project fund could help de-risk the investment in attracting the private sector, where possible. Page 14 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) appropriate. It is envisaged that a rolling program of design and investment support for the water supply schemes would be carried out. Investment will commence with a first priority scheme, which has been designed during project preparation, to test and pave the way for a smooth rolling investment program. A TA to identify, assess, and design further selected town and commune schemes will commence in parallel. Given the water security and sustainability issues linked to climate change risks (mainly flooding and droughts), an optimal design for energy efficiency through proper sizing of electrical-mechanical equipment, demand management for water conservation, development of alternative water sources, and source protection (through, for example, diverting city drains away from water source and catchment protection to reduce pollution risks) will be pursued. The provision of quality water supply services along with communication to promote consumption of safe piped water (see paragraph 23) could reduce pumping and water boiling practices among households in the project areas, contributing to reduction of greenhouse gas (GHG) emissions. 22. In addition to supporting service delivery at the service provider level, a TA to support the MIH to develop an urban water supply strategy, including policies on cost recovery (for example, tariff and subsidies) and investment plan, will also be provided. This TA will anchor the project in the water supply sector at the national level by improving sector strategic direction and institutional capacity. Additionally, this component will also include capacity and performance improvement TA to the selected water service providers to (a) manage and operate the systems to ensure technical and financial sustainability; (b) integrate climate change risk considerations in the O&M of the system (because systematic inclusion of climate risks has not been practiced to date); (c) adapt and apply social accountability framework (SAF), especially by mobilizing women participation in this mechanism, to strengthen service quality and responsiveness to citizens; and (d) improve gender sensitivity of the human resource policies at water service providers to create a better enabling environment for empowering and attracting female staff. Activities include providing training opportunities on technical and management skills for existing female staff and, where possible, creating an internship program for prospective female staff. The project will also deliver awareness raising workshops to promote gender sensitivity among men and women in selected water supply service providers. By helping improve the operational and financial management (FM) of public water service providers, and especially by incorporating climate change aspects into the O&M of the water supply system, a more flexible and reliable good-quality water supply will be secured, thus increasing the project areas’ resilience to droughts and floods. TA will also be provided to augment and support the project management and supervision capacity of the implementing agency. 23. The component will finance activities that contribute to the Bank’s approach to improving maternal and child nutrition in Cambodia. The component will provide TA to study, recommend, and develop a water connection program (including financial subsidies through output-based mechanism as appropriate) focused on helping poor households and households with young children under the age of two to access clean water supply services. Further, a program of nutrition-sensitive communications to promote consumption of piped water, safe water handling/treatment, and other hygiene behaviors30 will be rolled out using existing local delivery platforms. All communication messages will be informed by the Gender Gap Analysis conducted for the project to optimize the benefits for women and girls. The Bank’s teams working on Water, Health, Nutrition, and Population are jointly designing a complementary approach to WASH and nutrition social and behavior change communication (SBCC). Implementation of 30The communication package is being developed under a Bank-executed TA in close collaboration with the water and health team. Page 15 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) the communications campaign financed under the project will be coordinated with other nutrition-related communication programs to align the messages and delivery platforms, to the extent possible, in targeted towns and communes. Where the project areas converge with the proposed Cambodia Nutrition Project (currently under preparation)31, joint activities will be conducted by leveraging a common delivery platform.32 Component 2: Provincial Sanitation Improvement (IDA – US$24.5 million; RGC – US$1 million) 24. This component is focused on supporting the development and construction of secondary and tertiary sewers to the existing main sewer transmission lines in Siem Reap City, to enable household and businesses to connect directly to the city’s sewerage system. A large wastewater treatment plant and primary transmission mains were built in 2008 without secondary and tertiary sewers. Currently, only major premises close to the main sewers are connected, and there is instead reliance on interceptors to collect sewage from main drains. Limited collection and damage33 to the transmission lines resulted in little sewage reaching the treatment plant. When climate change-induced flooding in the city occurs, there is high fecal contamination of floodwater, creating health risks across many neighborhoods in the city. The construction of secondary and tertiary sewers coupled with a household connections program will improve the collection and transmission of household excreta to the wastewater collection and treatment facilities, reducing the exposure pathway of fecal contamination to the population in the event of floods. This component will also support rehabilitation and augmentation of the existing sewerage system to improve its operational efficiency, including rehabilitation and upgrading of sewage pumping stations and fecal sludge receiving and management systems. More effective treatment of a larger volume of wastewater and fecal sludge will reduce the contamination of water bodies (also see paragraphs 8, 9, and 17) and thus increase availability of clean water supply. 25. At the national level, TA will also be provided to support the MPWT in developing an urban sanitation strategy, including policies on cost recovery (for example, tariff and subsidies), city-wide inclusive sanitation, FSM and sanitation investment plan. Such support will contribute to improving sector strategic direction and long-term institutional capacity development. Additionally, this component will also include capacity and performance improvement TA to the Siem Reap Sewerage and Wastewater Treatment Plant unit (SWTPU) to (a) ensure adequate O&M of the sewer lines and sanitation facilities (including integrating climate change risks in the O&M), management of fecal sludge services including collection, transport, and treatment;34 (b) ensure that wastewater effluents meet discharge standards through capacity building and provision of laboratory equipment; and (c) improve gender sensitivity of the human resource policies at the unit to create a better enabling environment for empowering and attracting female staff. Necessary equipment for O&M will be provided. Support to adapt and apply SAF 31 Currently, the project is designed to have nationwide components complemented by intensive activities in Mondul Kiri, Ratanak Kiri, Preah Vihear, Stung Treng, Kratie, and Kampong Chhnang. 32 An assessment of local implementer of WASH and nutrition is being undertaken jointly by the water and health teams. This, together with the WASH-nutrition communication package under preparation through the ASA, will inform the design of the delivery of the nutrition-sensitive BCC for water supply and sanitation. 33 An ongoing ADB project is rehabilitating the damaged sections of transmission line. 34 The GGGI is assessing how to improve the business model for fecal sludge collection and transport in Siem Reap City. Thus, the proposed project TA will support the Government in implementing the recommendations. The project will also complement the other development partner who is active in FSM in Siem Reap City. The SIAAP has recently allocated funds to study, design, and construct the sludge receiving facility in the wastewater treatment plant (and including a fertilizer production facility). A business viability study for the fertilizer scheme is being studied by a consultant retained by SIAAP. Page 16 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) to strengthen service quality and responsiveness to citizens will be provided. A sewer connection program including communications (to be informed by gender analysis), social mobilization, and other aspects (such as technical, financial, and policy considerations) will be carried out to encourage households and businesses to connect to the sewerage system. TA will also be provided to augment and support the project management and supervision capacity of the implementing agency, as well as improve future sewer development planning through the provision of light detection and ranging (LIDAR)-based digital elevation map of the city. Project Cost and Financing 26. The lending instrument will be an Investment Project Financing (IPF) with a five-year implementation period. The total estimated project cost is US$57.5 million, including price and physical contingencies. An IDA credit financing of SDR 39.3 million (US$55.0 million equivalent) would be provided, and the Government’s support in the form of counterpart financing amounts to US$2.5 million, including in-kind contributions, the use of office space, staff costs, and basic utilities expenses. Table 1. Breakdown of Project Cost by Components Counterpart Project Costs IDA Financing Project Components Financing (US$, millions) (US$, millions) (US$, millions) 1. Provincial Water Supply 32.0 30.5 1.5 1.1 Water Supply Infrastructure Development 25.6 25.6 0.0 and Household Connections 1.2 Project Management and Institutional 6.4 4.9 1.5 Strengthening 2. Provincial Sanitation Improvement 25.5 24.5 1.0 2.1 Sanitation Infrastructure Development and 19.9 19.9 0.0 Household Connections 2.2 Project Management and Institutional 5.6 4.6 1.0 Strengthening Total 57.5 55.0 2.5 C. Project Beneficiaries 27. The direct beneficiaries will be the population of towns and districts where water supply and/or sanitation schemes will be financed by the project. Water supply investments are expected to directly benefit about 105,000 people in various towns and communes. Among people residing within the service area of the urban sanitation networks in Siem Reap City, an additional 27,000 people are expected to have access to improved quality of sanitation services through connection to the sewer network or have their sludge safely collected and treated. In addition, the population in Siem Reap City who are currently connected to the wastewater treatment plant, estimated to be around 21,000 people, will also benefit from improved operations and performance of the wastewater treatment plant. Additional beneficiaries include people benefiting from hygiene behavior change messages in the project location and beyond and staff of the WSS operators receiving capacity-building support from the project. 28. Citizen engagement will be incorporated in many aspects of the project. During project implementation, ongoing government public fora at the concerned localities will be leveraged, where Page 17 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) possible, to provide project information as much as possible to the citizens and receive suggestions for the project. Waterworks and wastewater operators supported by the project will also implement a SAF, by engaging people benefitting from the service to (a) understand minimum WSS service standards, (b) monitor and provide feedback on service provider performance, and (c) identify and agree on actions to be taken by service providers to improve the quality of services. The MIH also has a complaint mechanism on a web-based Water Supply Monitoring System (WSMS), which was developed with the support of a Bank-executed TA, whereby the public can submit their water supply-related complaints to the MIH and track how their complaints are being addressed. The project will also leverage on this platform by disseminating this mechanism to the wider public and by supporting the MIH in handling complaints on time and improving service providers’ accountability to citizens. D. Results Chain 29. Figure 1 shows the Theory of Change of the proposed project, illustrating the link from the project’s key activities through to the main project outcomes. Figure 1. Theory of Change Page 18 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) E. Rationale for Bank Involvement and Role of Partners 30. The rationale for the Bank’s involvement through the project is strong. For water supply, development partners have historically supported financing the expansion and improvement of provincial town water supply. A few development partners have focused on supporting the private sector to expand and/or develop water supply schemes in areas where water source is easily accessible. Despite these supports, significant gaps remain and reaching the SDGs would require an accelerated increase in access and in improvement of quality of service in gap areas that are more challenging. The Bank project will contribute to fill these gap areas which are geographically dispersed and where persistent challenges are present. The Bank has also long been engaging with the MIH through Bank-executed TA in strengthening private sector participation in water supply (see paragraph 12). The project will present a strategic opportunity building on this long-standing partnership to make an impact on the sector at scale, especially by potentially bringing private sector participation to more challenging areas, creating models that could be replicated across the country. The Bank is also the lead development partner supporting implementation of the joint Government-Civil Society SAF and is well positioned to extend application of this framework to water and sanitation services. 31. For sanitation, the project will close the infrastructure gap for wastewater in Siem Reap City by providing more possibilities for household connections to the sewer network, thus contributing to optimal functioning of the wastewater system which was already in place. In addition, through this engagement, the Bank could bring in an institutional strengthening agenda for sustainable WSS services provision and the concept of city-wide inclusive sanitation to the country to start addressing the wastewater agenda that is beginning to be a pressing issue for development. Lessons from the project could inform strategic engagement in the future to provide stronger support to the nutrition agenda in the country through water and sanitation investment. F. Lessons Learned and Reflected in the Project Design 32. The project builds on the experience of and lessons from previous Bank’s water projects: Urban Water Supply Project (P045629),35 Provincial and Peri-Urban Water and Sanitation Project (P073311),36 Bank-executed TA,37 and other global studies. The project approach embraces options for private sector participation in financing water supply schemes given the current dynamic role of the private sector in the provision of water supply. However, experience from past projects indicates the need for close monitoring support for project implementation and suggests that enhanced capacity building be provided to the implementing agencies. The project will include TA to the Government on technical and fiduciary aspects to reduce associated risks during project implementation. In addition, considering the capacity challenges in waterworks, infrastructure investments alone may not lead to better service provision and thus specific training on technical aspects and business management is important to the overall performance of the waterworks. Upstream sector support at the policy level will also be provided to ensure service 35 Closed in FY04, Implementation Completion and Results Report (ICR) rating Highly Satisfactory. (ICR Report No. 30003, dated January 21, 2004) 36 Closed in FY11, ICR rating by the Independent Evaluation Group was Moderately Unsatisfactory. (ICR Report No. ICR2095, dated February 19, 2012). The project fell short of attaining its expected outcomes and contributed to the MDGs in a very modest way, reflecting its limited scale. Efficiency of the investments is also modest, and there were fiduciary issues as well as operational and administrative inefficiencies. 37 Ibid. 21 Page 19 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) sustainability at scale. Urban sanitation has historically been focusing on the provision of sewer and wastewater infrastructure, with little attention to the holistic service chain of sanitation. Introducing the concept of a sanitation service chain in the project could generate a useful policy discussion that could benefit the sector in the long run. Box 2.3 in Annex 2 provides more detailed lessons learned. III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 33. The project will be prepared and implemented by the appropriate existing sector institutions in alignment with sector institutional mandates and in accordance with the Government’s Standard Operating Procedure (SOP). The MIH will be the implementing agency for Component 1. The MIH will establish the Component Management Unit 1 (CMU-1) implementation team, led by its General Department of Potable Water Supply (GDPWS). The staff of the relevant provincial Department of Industry and Handicraft (DIH) and participating water supply service providers will be included in CMU-1. The MPWT will be the implementing agency for Component 2. The MPWT will establish the CMU-2 implementation team, led by the General Directorate of Public Works through its Sewerage Management and Construction Department (SMCD). Apart from implementing Component 2, the CMU-2 will also be responsible for overall project coordination, consolidating all project reports, and overall project audits. The staff of the Siem Reap Provincial Department of Public Works and Transport (DPWT) and the Siem Reap SWTPU will be included in CMU-2. Both the GDPWS and SMCD are relatively new and most staff from these departments do not have experience in Bank-financed projects, requiring the provision of specialist consultants to support project implementation and management. In addition, subnational authorities (that is, districts and communes) and community facilitators would be engaged in implementing the social accountability elements of the project. The districts and communes will also be supported through TA (financed under Component 1) to deliver nutrition-sensitive communication campaign for safe water handling and other hygiene practices. The districts and communes will provide local coordination support during the design and implementation of the project. 34. The project’s financial management and procurement arrangements follow the SOP, Financial Management Manual (FMM), and Procurement Manual for All Externally Financed Projects/Programs in Cambodia for the respective implementing agencies. The Department of Accounting and Finance (DAF) of the MIH and the Department of Finance (DoF) of the MPWT will support CMU-1 and CMU-2, respectively, in handling all the FM and disbursement-related matters. The Procurement Units of the MIH and MPWT will support CMU-1 and CMU-2 in handling procurement tasks. Time-bound specific consultant supports will be provided by the project to the relevant departments/units in performing FM and procurement functions. 35. A Steering Committee (SC), chaired by the MPWT, will be established to provide overall project guidance and coordination. The SC will include high-level representation from the MPWT, MIH, Ministry of Economy and Finance (MEF), Ministry of Health (MOH), National Committee for Sub-National Democratic Development Secretariat (NCDD-S), MRD, and other relevant agencies. The representatives from the Gender Mainstreaming Action Group (GMAG) of the MPWT and the MIH will also be members of the SC. The SC will hold semiannual meetings to monitor overall project progress, facilitate inter- ministerial coordination and the removal of any obstacles to the timely and effective implementation of Page 20 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) the project, facilitate policy discussion, and provide strategic guidance. The SC will be supported by the CMU-2 in undertaking its tasks including arranging for the meetings. 36. The roles, responsibilities, and procedures for the project are detailed in the Project Operation Manual (POM). The manual will be maintained and updated from time to time as needed. It will detail the project management, institutional arrangements with clear roles and responsibilities, financial procedures and management fiduciary responsibilities, staff selection and management, results monitoring and evaluation (M&E), risk assessment and mitigations, environmental and social safeguards, and any other specific reporting requirements imposed by the Bank and Government policies. B. Results Monitoring and Evaluation Arrangements 37. The MIH and MPWT are responsible for collecting and reporting the data/indicators relevant to water supply (Component 1) and sanitation (Component 2), respectively. The MIH currently has in place the WSMS, upon which the project will build to track achievement of results and sector progress. In addition, all public water service providers have had experience in performance monitoring which will make the M&E for water supply component more straightforward. The MPWT, however, does not have an M&E system in place at the ministry level and service provider level, and thus enhanced capacity building is needed at both levels. Support would be provided to disaggregate and analyze data by gender and determine if actions are needed to address emerging inequalities. 38. The MIH and MPWT will submit six-month progress reports that would describe implementation progress and highlight issues that need attention (including safeguards compliance and mitigation actions). The MIH and MPWT will monitor and evaluate the progress of the project and furnish project progress reports to the Bank. These reports will keep track of the progress of implementation and progress toward meeting the PDO and interim results indicators. A midterm review of project performance will be carried out by the MIH, MPWT and the Bank no later than 30 months after project effectiveness. 39. The project supports greater transparency and accountability to citizens through the incorporation of the SAF38 by promoting community-led monitoring (using scorecards) of the quality of services provided by participating water service providers and the Siem Reap SWTPU. The MIH and MPWT will coordinate with the NCDD-S, which leads the social accountability agenda, in developing, implementing, monitoring, and reporting on the SAF in the project. C. Sustainability 40. The establishment of the General Department of Potable Water Supply in the MIH and Sewerage Management and Construction Department in the MPWT, in 2016, indicates the Government’s commitment to the improvement of urban WSS in the long term. In addition, sector directions have been discussed and agreed with the MEF, MIH, and MPWT whereby a cost-recovery mechanism needs to be clearly specified and that, in principle, all the WSS service providers will 38As part of its decentralization reform, the Government has strived for improving service delivery at the local level. The Implementation Plan on Social Accountability was developed in 2013 with an aim of strengthening the quality of service delivery at the subnational level through community-led monitoring (through the use of scorecards) of service performance. Now, as the first phase of implementation comes to an end, the second phase of implementation plan is being developed. Page 21 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) progressively achieve financial sustainability. The project will support the MIH and MPWT in setting up the needed strategy and investment plan, by incorporating these aspects, to respond to the growing demand and challenges posed by climate change. The project will also include citizen monitoring of the WSS service provision at the local level, strengthening the service sustainability over the long run. IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic, and Financial Analysis 41. For water supply, it is envisaged that schemes will be small and modest in size. Modest expansion of an existing water supply distribution system to use existing idle production capacity to service more customers is envisaged in one main provincial town under an initial investment phase. The following plan is to expand both source and distribution in a second phase for this same town and one other main provincial town. Typical new reticulation water systems supported by the project are anticipated to have relatively small volumes, sourced from groundwater or nearby surface water sources. Simple technical design, commonly used by the MIH, will be used along with good practices to improve climate resilience. The MIH has long experience in developing and operating piped water supply in many provinces and a similar design has been used across these project locations. Adopting a technical design that the MIH and water supply service providers are familiar with, with enhanced focus on climate resilience, would ease the future O&M of the systems, providing more sustainable long-term operations. 42. Two main provincial towns have been identified based on an assessment of need and the lack of government or development partner funding. Of these, an abbreviated feasibility study, draft design, and bidding documents for the expansion of the existing water supply system in Saen Monourom Town in Mondul Kiri Province have been developed. During project implementation, feasibility studies will be conducted to assess further expansion (including additional production) in Saen Monourom Town in Mondul Kiri Province and Stoung Town in Kampong Thom Province. If the expansion is found to be feasible, the design and bidding documents will be prepared for project investment support. It is anticipated that the project will help screen small-scale piped water supply systems in communes (commencing with four communes in Phnum Proek District in Battambang Province, with others to be further identified); consider options for private and/or public financing, operations, and management; and then develop designs and bidding documents as appropriate, leading to the construction of the proposed water supplies. The draft terms of references (TORs) for (a) additional technical staff to support the implementing agency, (b) the construction supervision consultants, and (c) the feasibility and design consultants for schemes identified during implementation, have been prepared. 43. For sanitation, implementation is envisaged to begin with the rehabilitation and retro-fitting of the existing sewerage system in Siem Reap City (consisting of the existing wastewater treatment plant and primary trunk sewers) to improve the system’s operational efficiency. With the support of Cities Development Initiative for Asia (CDIA), a Wastewater Development Plan for Siem Reap City has been prepared. This is a valuable input to the project, which will support further development and the subsequent implementation of these key elements of the secondary and tertiary sewer systems. The feasibility study, designs, and bidding documents for three zones of the secondary and tertiary sewer systems will be completed with both CDIA and project support. The draft designs for the rehabilitation and upgrading of three existing sewage pumping stations and one of three proposed secondary and Page 22 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) tertiary sewer systems39 have been prepared. The designs for the remaining two zones will be completed during implementation. The technical design for secondary and tertiary sewers connecting to the existing wastewater infrastructure is straightforward and assessed to be suitable for the capacity of the MPWT to construct and undertake the O&M of the system. The draft TORs for (a) additional technical staff to support the implementing agency, (b) the construction supervision consultants, and (c) the design consultants for the secondary and tertiary sewer systems have been prepared. 44. Because of the importance of clean, piped water for improved health and nutrition outcomes, wherever feasible, some of the project locations will converge with the proposed Cambodia Nutrition Project starting with Saen Monourom Town in Mondul Kiri Province which is known to be a stunting hotspot (stunting rate at 39.8 percent). Additional locations will be identified during project implementation, aiming at areas where piped water supply service is feasible but not yet developed or planned by development partners or the private sector and factoring in the need for convergence with the proposed nutrition project.40 A separate grant funded TA to prepare investment plans at the provincial level has been adjusted to include some provinces that are expected to be focus provinces of the nutrition project. Where common intervention areas (for example, communes) are identified, coordinated activities supporting households with children under two years, including provision of water services and health, water safety, and hygiene common messaging (engaging with commune council), are expected to be undertaken. Service provision and water safety and hygiene messaging will also be undertaken in all areas supported by the project. There may be areas under the nutrition project where water supply is being provided by other development partners or the private sector. In these cases, the Bank will help facilitate the dialogue with these actors to encourage these common interventions, nutrition-sensitive activities, and service delivery platforms. 45. The economic and financial analyses were conducted for Mondul Kiri Phase 1 under Component 1 and Siem Reap under Component 2. A ‘with’ and ‘without’ project methodology was used over a 20- year period at constant 2017 prices. A full description of the analyses by component, including recommendations for key variables to be monitored during supervision, are included in Annex 3. 46. The projected financial performance of both the Mondul Kiri water supply and Siem Reap City sanitation investments shows significant improvements compared to their respective without-project scenario. The financial performances of both are much better in the with-project scenario. Both investments are expected to lead to the ongoing financial sustainability of the respective schemes, generating more revenues out of its asset base (see Table 2 and Table 3). The Mondul Kiri waterworks’ water supply scheme is expected to reach full cost recovery, including covering for major replacement. The Siem Reap SWPTU is expected to reach operational cost recovery (that is, excluding depreciation).41 With the target of eliminating the need for recurrent operational subsidies in Siem Reap in mind, a target of increasing cost recovery from customer revenues will be included as a project results indicator. The net present values (NPVs) calculated comparing the with- and without-project scenarios are negative in both cases at 10 percent discount rate, with the Mondul Kiri investment’s financial internal rate of return (IRR) being marginally negative (see Table 4). It is normal for urban sewerage investments not to generate 39 The three zones include West Trunk Sewer Zone, East Trunk Sewer Zone, and Interceptor Sewer Center Zone. The draft design for West Trunk Sewer Zone is currently available. 40 There may be areas under the nutrition project where water supply is being provided by other development partners or the private sector. 41 Full cost recovery is achievable with tariff increase over time. Page 23 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) financial profitability but rather is justified on economic returns and social benefits (see paragraph 47). More broadly, the project will provide TA on urban sanitation policy which will help set out the overall national policy road map on tariff and subsidies to fund capital and operational costs (see Annex 2). Table 2. Financial Performance Projection (Net Income): With-Project Scenario Net Income (KHR, millions) 2018 2023 2028 2033 2038 a Mondul Kiri: Phase 1 (7) 154 185 185 185 Siem Reapb (2,499) (3,044) (2,242) (2,128) (2,190) Note: a. Includes replacement set-aside provisions. b. Includes depreciation provisions but excludes recurrent subsidies. Table 3. Financial Performance Projection (Operating Income): With-Project Scenario Operating Income a (KHR, millions) 2018 2023 2028 2033 2038 Mondul Kiri: Phase 1 128 298 330 330 330 Siem Reap (255) (0) 802 916 854 Note: a. excludes replacement set-aside or depreciation provisions and excludes subsidies. Table 4. Base Case With-Project versus Without-Project Financial Analysis Results Discount Rate: 10% NPV (KHR, millions) IRR (%) Mondul Kiri: Phase 1 (2,714) −2.2 Siem Reap (54,764) n.a. 47. Both investments are economically viable at 10 percent discount rate (see Table 5). For Mondul Kiri, the largest economic benefits accrue from the avoided private costs, time saving and reduced GHG emissions. Distributional benefits may also be high considering the large number of ethnic minority, constituting 38 percent of the population but not included in the analysis. In Siem Reap City, economic benefits from increased tourism and better health were the largest. Table 5. Base Case With-Project versus Without-Project Economic Analysis Results NPV (KHR, millions) IRR (%) Mondul Kiri: Phase 1 5,190 24.7 Siem Reap 28,083 16.9 48. The net emissions of the project are estimated at −10,701 tCO2-eq over the 19-year life of the project, while the gross emissions are estimated to be 15,659 tCO2-eq. On average, the project generates estimated net emissions of −564 tCO2-eq annually. The net emissions for the water system expansion under Component 1 break down as 753 tCO2-eq for source extraction, 102 tCO2-eq for conveyance, 697 tCO2-eq for treatment, and 503 tCO2-eq for distribution, −69 tCO2-eq from ending the use of household pumps, and −13,509 tCO2-eq from reducing domestic water boiling for a total of −11,523 tCO2-eq. The wastewater collection activities under Component 2 are net emissive at 822 tCO2-eq. Page 24 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) B. Fiduciary (i) Financial Management 49. The FM arrangements will be in accordance to the Bank Policy and Directive: Investment Project Financing. The project will use the existing structures of the implementing ministries as part of its implementation arrangements. The project will be implemented by the MIH and MPWT. The MIH will be responsible for Component 1, and the MPWT will be responsible for Component 2. The MEF will oversee the financial service support and guidance on overall project implementation of both components. An FM assessment of the MIH and MPWT concluded that the FM risk is Substantial. The major risks identified were (i) limited staff experience related to accounting software and Chart of Accounts (COA) and maintenance of accounting records, (ii) limited experience for managing, and lack of familiarity with, Bank- funded projects, and weaknesses in internal controls, and (iii) MIH and MPWT finance staff lacks familiarity with the Bank’s FM, disbursement and procurement procedures. These risks will be mitigated by providing FM training and TA to the MIH and MPWT, and involving the government internal audit agencies of the MIH and MPWT to ensure that the project’s internal control systems are operating satisfactorily according to the SOP/FMM. 50. The finance staff from the DAF of the MIH and the DoF of the MPWT will be assigned to manage the project finances. The Designated Accounts (DAs) will be opened at the National Bank of Cambodia (NBC) to receive IDA funds for each component. Assigned officers from the DAF of the MIH and DoF of the MPWT will have overall responsibility for administration of their respective DAs and for payments for project-related activities according to the Annual Work Plan and Budget (AWPB) approved by the Bank. The preparation of the AWPB will follow the procedures outlined in the Government’s SOP/FMM. The disbursement of loan proceeds from the Bank will be made through submission of withdrawal applications with adequate supporting documents. The applications will be required to get prior approval from the MEF before being furnished to the Bank for payment. 51. The project will maintain adequate FM systems acceptable to the Bank. A six-month interim unaudited financial report (IFR) will be submitted to the Bank no later than 45 days after the end of each semester. The project shall have its financial statements audited annually. Each audit will cover one calendar year and the audit report for each year shall be submitted to the Bank not later than six months after the year-end. A summary of the overall FM arrangements is provided in Annex 1. (ii) Procurement 52. Procurement under the project will be carried out in accordance with World Bank Procurement Regulations for Borrowers under Investment Project Financing (IPF) dated July 1, 2016, revised in November 2017 and August 2018. The approaches to national markets (National Procurement and Request for Quotations [RFQs]) will be carried out in accordance with the Kingdom of Cambodia’s Updated SOPs and Procurement Manual for All Externally Financed Projects/Programs (Procurement Manual), promulgated through the Sub-decree 74, dated May 22, 2012, which was issued pursuant to Article 3 of the Kingdom of Cambodia’s Law on Public Procurement, dated January 14, 2012, subject to the additional provisions included in the National Competitive Bidding (NCB) annex in the Procurement Plan and the provisions stipulated in the Financing Agreement. The MIH will be the implementing agency for Component 1, and the MPWT will be the implementing agency for Component 2. The procurement Page 25 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) activities for Components 1 and 2 will be supported by the Procurement Unit of the MIH and MPWT, respectively. The procurement assessment of the MIH and MPWT concluded that the procurement risk is Substantial. The major risks identified were (i) limited knowledge of, and experience with the Bank’s Procurement Regulations, (ii) delays from start-up issues, departmental coordination challenges and internal approval processes, (iii) inter-ministerial coordination challenges, (iv) internal clearance delay, (v) prolonged procurement of consulting firms, (vi) informal business practices imposing negative impact on the procurement, and (vii) governance risks. These risks will be mitigated by (a) providing procurement training to the MIH and MPWT staff, (b) assigning focal point persons for procurement and coordination, (c) careful planning and monitoring through the Bank’s Systematic Tracking of Exchanges in Procurement (STEP) system and the government’s SOP procurement tracking, (d) publication of procurement plans and award information, and (e) the establishment of a procurement complaint-handling mechanism. C. Safeguards (i) Environmental Safeguards 53. The project will generate positive environmental benefits and produce healthier sanitation services in the selected towns/communes. The project triggers the following environmental and legal safeguard policies: (i) Environmental Assessment (OP/BP 4.01) due to potentially localized small scale and site specific environmental impacts induced by the project investments, (ii) Natural Habitats (OP/BP 4.04) due to the potential of critical natural habitat being impacted when water is sourced from natural streams and water bodies, (iii) Physical Cultural Resources (OP/BP 4.11) due to the potential for sub-projects to be located in or near areas known for historical and cultural heritage, especially in Siem Reap City, and (iv) Safety of Dams (OP/BP 4.37) as a precautionary measure in the event that some subprojects may rely on or be impacted by the safety of existing dams.42 The project is proposed as category ‘B’ as the localized environmental impacts can be managed through standardized mitigation measures and monitoring actions as part of the environmental safeguard instrument i.e., the Environmental and Social Management Framework (ESMF). The ESMF includes the Environmental and Social Management Plan (ESMP) and/or Environmental Code of Practice (ECOP) for the works where draft designs are available and works are expected to start in the early years of the project. This includes the water supply network expansion in Saen Monourom Town in Mondul Kiri, the rehabilitation and upgrade of three existing sewage pumping stations, and the installation of secondary and tertiary networks in one of the network zones, that is, West Trunk Sewer Zone, in Siem Reap City. The ESMF has been prepared by the implementing agencies to minimize, prevent, and reduce possible temporary and site-specific impacts on the environment. (ii) Social Safeguards 54. The project triggers both the Involuntary Resettlement (OP/BP 4.12) and Indigenous Peoples (OP/BP 4.10) policies of the Bank. The Involuntary Resettlement policy is triggered as both the sanitation and water supply works planned may involve the disruption of commercial or other activities occupying the right-of-way or the acquisition of private land for investments such as water treatment plants. It is possible that the works planned in Siem Reap City will result in the temporary disruption of commercial activities in the night market area. Similarly, the provincial water supply works, to be financed, may 42See further explanation in the Project Information Documents/Integrated Safeguards Datasheet (Report No. PIDISDSA25092) disclosed on October 11, 2018). Page 26 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) require land acquisition for the construction of water treatment plants. However, detailed designs for these works will not be ready until the implementation stage. The works for which preliminary/detailed designs have been prepared as a basis for appraisal in Mondul Kiri Phase 1, involving water supply network expansion, and Siem Reap City, involving installation of secondary and tertiary sewer networks in West Trunk Sewer Zone and rehabilitation of sewage pumping stations, will not result in land acquisition or resettlement impacts. This was confirmed through environmental and social impact screening exercises conducted in both Saen Monourom Town and Siem Reap City. Therefore, a Resettlement Policy Framework (RPF) has been prepared and disclosed, which specifies the requirements for the preparation of site-specific resettlement plans once the detailed designs for other works have been finalized. 55. The Indigenous Peoples policy is triggered because of the presence of indigenous (Pnong) communities who are likely to benefit from the expansion of water supply investments under Phase 2 in Mondul Kiri. The detailed designs for these works will be prepared during the implementation stage. The Mondul Kiri waterworks have already conducted preliminary social assessments (in the form of household interviews) to ascertain the broad social acceptability and interest for extending the town's water supply network to these communities. This assessment informed the preparation of an Indigenous Peoples Planning Framework (IPPF) which was disclosed and discussed during a stakeholder consultation meeting in Saen Monourom Town. The detailed designs for the works, which will directly benefit indigenous communities, will not be finalized until the implementation stage. Therefore, an IPPF was considered the appropriate planning instrument. The IPPF specifies the requirements for the preparation of site-specific indigenous peoples plans, based on social assessments and a process of free, prior, and informed consultation. 56. In terms of social impacts (especially gender-based violence and sexual assault and abuse) related to labor influx, the risk is expected to be moderate. This is because the works will require relatively mid- size work crews (30–50 workers per contract), the vast majority of whom will be recruited locally. Also, the works will take place within provincial cities where there is adequate recreation and accommodation facilities. This is also the case for the indigenous communities which are located on the outskirts of a provincial city, and, as such, are within commuting distance of urban-based accommodation. Workers contracted to do the works will be required to sign, and receive training, on a code of conduct which includes penalties and sanctions for behaviors (including gender-based violence and sexual harassment) that negatively affect the communities where the works are taking place. 57. The other social risk is that households will not connect to the tertiary sewer lines in Siem Reap City because of the disruption caused by construction activities to connect within premises and a low willingness to pay. This will be mitigated by the design of (i) a robust sewer connection program which includes communication and citizen engagement strategy to convey the benefits of connecting to sewer, and provision of household connection in the civil work contract, and (ii) a site-specific grievance redress mechanism which were included in the TOR for the design of investments in Siem Reap City. The design of the connection program will be informed by the results of a household socioeconomic assessment. (iii) Other Safeguards 58. The Projects on International Waterways policy (OP 7.50) is triggered. This is because the known water supply scheme location in Stoung Town will potentially extract water from a tributary connecting to Tonle Sap Lake, the effluent from the wastewater treatment plant in Siem Reap City discharged to Tonle Page 27 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Sap Lake, and as a precaution for other subproject locations that will be identified during project implementation. All the riparian countries have been notified.43 59. Public consultation and disclosure. All the safeguards instruments for the project were consulted with the stakeholders during safeguards and technical preparation missions and stakeholders’ consultation workshops were conducted in August and September 2018. The environmental and social safeguards instruments (ESMF, RPF and IPPF) have been publicly disclosed locally at the local offices and at http://www.mpwt.gov.kh and http://www.mih.gov.kh (in English and Khmer versions) and also through the Bank’s external website.44 Consultations would continue through Board submission and during implementation. (iv) Grievance Redress Mechanisms 60. At the beginning of project implementation, grievance redress committees will be established at commune, districts, and provincial levels built on the existing structures consisting of concerned departments, community organizations, women, and ethnic representatives, if they exist. In indigenous communities, the existing grievance mechanisms that are chaired by elder and/or spiritual leaders, which are largely acceptable to local communities, will be strengthened as the first-tier conflict resolution mechanisms. This arrangement helps ensure that a system is in place to resolve any grievances or complaints that may occur after project intervention. The grievance mechanism will be applied to persons or groups that are directly or indirectly affected by a project, as well as those that may have interests in a project and/or have the ability to influence its outcome either positively or negatively. The project will provide training and support to strengthen these existing structures for effectively and collectively dealing with possible grievances that may be raised by project-affected peoples during the course and after the implementation of resettlement-related activities. 61. The contractor will also be responsible for recording citizen complaints and concerns as they arise on the work sites and should have a community liaison officer dedicated to this task. They will also be required to conduct a public information meeting before the commencement of the works to disseminate information on how the work site grievance handling mechanism will function. Subsequently, they will be expected to conduct regular public information meetings to explain how grievances are handled. These meetings will also be attended by representatives from relevant implementing agencies, and the commune/Sangkat authorities. 62. Communities and individuals who believe that they are adversely affected by a World Bank supported project may submit complaints to existing project-level grievance redress mechanisms or the Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the Bank’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of the Bank non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to 43 At the request of the borrower, the Bank sent the notifications to riparian countries on the borrower’s behalf on October 5, 2018. 44 Latest revisions of these instruments were updated and disclosed on February 6, 2019. Page 28 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) the World Bank’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance-redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. V. KEY RISKS 63. Overall risk rating for the operation is ‘Substantial’, largely because of the substantial risk ratings related to institutional capacity, and fiduciary risks that may potentially affect the achievement of the results. 64. Institutional capacity for implementation and sustainability. The GDPWS in the MIH does not have recent experience in implementing Bank-funded project. Some GDPWS staff are currently involved in an ADB-funded project, but there is heavy reliance on external consultants in executing the work. Although some SMCD staff in the MPWT have experience in implementing an ADB project, the capacity and experience in implementing the Bank project is limited. The project will provide a complement of specialist consultants sufficient to help the implementing agencies with project implementation and management. 65. Fiduciary. The fiduciary capacity at the MIH and MPWT is limited. Finance staff of the DAF from the MIH and the DoF of the MPWT appear to have adequate knowledge in government FM but lacked experience in managing externally financed projects. Similarly, the MIH and MPWT have limited experience in conducting procurement in accordance with World Bank Procurement Regulations for Borrowers under IPF and the Government’s SOP and Procurement Manual for All Externally Financed Projects/Programs. The Procurement Units of the MIH and MPWT have limited number of staff to carry out the procurement work for the project. In this regard, the fiduciary risks are substantial related to the capacity of the MIH and MPWT to ensure that procurement guidelines and procedures are followed in the context of substantial governance risk associated with infrastructure works, timely billing of contractors, and limited contract management capacity. The project will provide the needed capacity support and put in place internal control mechanisms to mitigate the risks. . Page 29 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) VI. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Cambodia Water Supply and Sanitation Improvement Project Project Development Objectives(s) The Project Development Objective (PDO) is to increase access to piped water supply and improved sanitation services and strengthen the operational performance of service providers in selected towns and/or communes. Project Development Objective Indicators RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Outcome 1: Increased access to piped water supply People provided with access to improved water sources through piped 0.00 0.00 2,000.00 3,800.00 12,000.00 80,000.00 105,000.00 household water connections in target areas (Number) People provided with access to improved water sources through 0.00 0.00 1,000.00 1,900.00 6,000.00 40,000.00 52,500.00 piped household water connections in target areas - Female (Number) People provided with access to improved water sources through 0.00 0.00 0.00 650.00 3,500.00 8,000.00 10,000.00 piped household water connections in target Page 30 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 areas - Poor (Number) Households with young children (under 2 years old) provided with access to improved water sources 0.00 0.00 0.00 130.00 700.00 1,600.00 2,000.00 through piped household water connections (Number) Outcome 2: Increased access to improved sanitation services People provided with access to improved sanitation services through 0.00 0.00 500.00 2,700.00 9,500.00 17,500.00 27,000.00 connection to sewer network in Siem Reap City (Number) People provided with access to improved sanitation services through connection to 0.00 0.00 250.00 1,350.00 4,750.00 8,750.00 13,500.00 sewer network in Siem Reap City - Female (Number) Outcome 3: Strengthened operational performance of service providers Selected water supply service providers supported by the Project achieving 0.00 0.00 20.00 30.00 50.00 60.00 70.00 operational cost recovery (Percentage) Level of operational costs 42.00 42.00 45.00 50.00 60.00 70.00 75.00 of Siem Reap Sewerage and Page 31 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) RESULT_FRAME_T BL_ PD O Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Wastewater Treatment Plant Unit covered by revenue collected from customers (Percentage) PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 Component 1: Provincial Water Supply Length of water supply pipeline constructed 0.00 0.00 20.00 80.00 140.00 250.00 300.00 (Kilometers) Daily volume of water production capacity 0.00 0.00 0.00 2,000.00 8,000.00 15,000.00 20,000.00 constructed (Cubic Meter(m3)) Female staff working in the water supply providers 13.00 13.00 13.00 15.00 18.00 20.00 25.00 supported by the Project in core roles (Percentage) Activities identified in joint action plan through social accountability framework for public water supply 0.00 0.00 30.00 50.00 60.00 70.00 75.00 operators supported by the Project implemented (Percentage) Female participants in 0.00 0.00 20.00 30.00 40.00 50.00 50.00 Page 32 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 community scorecards who provide service quality feedback to water supply service providers through social accountability framework (Percentage) Villages provided with piped water supply under the Project covered by nutrition-sensitve behavior 0.00 0.00 40.00 50.00 60.00 65.00 70.00 change communication campaign for water and sanitation (Percentage) Communes with identified joint interventions for water supply, sanitation and 0.00 0.00 3.00 5.00 6.00 8.00 10.00 nutrition (Number) Mondul Kiri Waterworks and Stoung Waterworks achieve financial readiness No No No No No Yes Yes to be made autonomous (Yes/No) Component 2: Provincial Sanitation Improvement Sewer network constructed in Siem Reap City 0.00 0.00 10.00 30.00 40.00 55.00 60.00 (Kilometers) Daily volume of wastewater collected and transported to wastewater treatment 0.00 0.00 800.00 3,200.00 5,600.00 6,500.00 8,000.00 plant in Siem Reap City (Cubic Meter(m3)) Activities identified in joint 0.00 0.00 30.00 50.00 60.00 70.00 75.00 Page 33 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) RESULT_FRAME_T BL_ IO Indicator Name DLI Baseline Intermediate Targets End Target 1 2 3 4 5 action plan through social accountability framework for Siem Reap Sewerage and Wastewater Treatment Plant Unit implemented (Percentage) Female participants in community scorecards who provide service quality feedback to Siem Reap Sewerage and Wastewater 0.00 0.00 20.00 30.00 40.00 50.00 50.00 Treatment Plant Unit through social accountability framework (Percentage) A national wastewater development strategy (including a tariff policy for No No No Yes Yes Yes Yes wastewater services) developed (Yes/No) IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection People provided with access to improved This indicator measures the Household Water connection Annually MIH water sources through piped household additional (cumulative) water registry maintained by water connections in target areas number of people who connection water supply service Page 34 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) benefited from piped water registry providers, including the supply that have been household members constructed with project information. If the support. latter is not available through the registry, average household size can be used. Alternatively, phone or house survey will be conducted by the water supply service providers on sampling basis for each reporting period. Water connection registry maintained by water supply service providers, including the This indicator measures the Household household members additional (cumulative) water information. If the People provided with access to number of females who connection latter is not available improved water sources through Annually MIH benefited from piped water registry through the registry, piped household water connections in supply that have been and/or house phone or house survey target areas - Female constructed with project hold survey will be conducted by support. the water supply service providers on sampling basis for each reporting period. People provided with access to This indicator measures the Annually Household Water connection MIH improved water sources through additional (cumulative) water registry maintained by Page 35 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) piped household water connections in number of people living in connection water supply service target areas - Poor poor households who registry, regis providers, including the benefited from piped water ter of poor household income supply that have been households a information. If the constructed with project nd surveys latter is not available support. through the registry, phone or house survey will be conducted by the water supply service providers on sampling basis for each reporting period. Water connection registry maintained by water supply service The indicator measures how providers, including the the project could reach household members nutrition sensitive information. If the households. Since there is latter is not available no baseline data, the target Household through the registry, Households with young children (under 2 will be reviewed and subject water phone or house survey years old) provided with access to Annually MIH to change as the connection will be conducted by improved water sources through piped information becomes more registry the water supply household water connections available during service providers on implementation. The sampling basis for each indicator measures the reporting period. It is additional number of important that the beneficiaries. water connection registry also includes the information on children within Page 36 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) households and the documentation proving that (eg. copy of birth certificate, etc.). Sewer connection registry maintained by sewerage service provider, including the household members information. If the This indicator measures the latter is not available additional (cumulative) through the registry, Sewer People provided with access to improved number of people who average household size Annually connection MPWT sanitation services through connection to benefited from improved can be registry sewer network in Siem Reap City sanitation services that have used. Alternatively, been constructed with phone or house survey project support. will be conducted by the sewerage service provider supported by MPWT on sampling basis for each reporting period. Sewer connection This indicator measures the Household registry maintained by additional (cumulative) People provided with access to connection sewerage service number of females who improved sanitation services through Annually registry providers, including the MPWT benefited from improved connection to sewer network in Siem and phone- household members sanitation services that have Reap City - Female based survey information. If the been constructed with latter is not available project support. through the registry, Page 37 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) phone or house survey will be conducted by the sewerage service providers, with support from MPWT, on sampling basis for each reporting period. The indicator measures the proportion of water supply service providers that are supported by the Project who can achieve full operational cost recovery, i.e. where the operating revenue can cover the Financial operating cost. The ultimate reports and All water supply service aim of the project is to have operational providers will submit the full operational cost Selected water supply service providers reports of the financial report and MIH and water service recovery for all supported Annually supported by the Project achieving the water operational report to providers service providers. However, operational cost recovery supply MIH for reporting on given the uncertainty in service this indicator. connection uptake and the providers timeline for water scheme construction completion, the target is rather set conservative. The indicator for each year will be calculated based on the number of service providers cumulatively supported by the Project up to that Page 38 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) particular year. The service provider is considered "supported" once the construction phase is completed and can be operational. Siem Reap Wastewater This indicator measures the Treatment financial improvement of Plant Unit Calculate from Level of operational costs of Siem Reap the Siem Reap sewerage (SRWTPU)'s SRWTPU's annual Sewerage and Wastewater Treatment Annually MPWT and wastewater utility annual financial accounts and Plant Unit covered by revenue collected towards operational cost financial operational reports from customers coverage from customer accounts and revenue. operational reports ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Project This indicator measures the Supervision consultant contracts, physical length of water should prepare Length of water supply pipeline Quarterly Supervision MIH network constructed by the quarterly constructed consultant project to distribute piped progress report for MIH report water to consumers. This indicator measures the Project Supervision consultant Daily volume of water production capacity Quarterly MIH additional amount of safe contracts, should prepare constructed drinking water produced Supervision quarterly Page 39 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) with project support consultant progress report for MIH report This indicator measures the increase in the proportion of female staff who hold core roles in water supply providers. "Core roles" refer Water supply operators to technical, professional Female staff working in the water supply normally have good and management role. It Annually Staff list MIH providers supported by the Project in core record of their staff does not include unskilled roles with gender breakdown labor. It includes full-time staff only. Contract staff is also included as they are providing overall support to the operation of the schemes as well. The indicator measures the accountability of the public water supply towards citizen. Social Accountability Framework follows three Project The waterworks, with processes: (1) service Activities identified in joint action plan progress the support of the providers publish service through social accountability framework Annually report and project consultant, will MIH standard, (2) community for public water supply operators respective have their own record scorecards are conducted, supported by the Project implemented waterworks of the activities. and (3) joint action plan is developed between service provider and community. Thus, implementing the activities in the action plan is key for the accountability. Page 40 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) This percentage in a particular year is an average of percentage of activities implemented by all public water operators cumulatively supported up to that particular year. For example, if 80% of activities identified for utility A are implemented, and 90% for utility B, the average activities implemented is 85%. Implemented activities include activities whose implementation is ongoing and activities whose implementation is completed. The indicator measures the women participation in the monitoring of performance of service provider and Progress report actively provide feedbacks Project provided by IA during Female participants in community for improvement. Social progress the project scorecards who provide service quality Accountability Framework Annually report and implementation. The MIH feedback to water supply service follows three processes: (1) respective waterworks, supported providers through social accountability service providers publish waterworks. by consultant, will have framework service standard, (2) record for the activities. community scorecards are conducted, and (3) joint action plan is developed between service provider Page 41 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) and community. Thus, implementing the activities in the action plan is key for the accountability. BCC resource agency/firm will prepare BCC reports including the list of villages where BCC activities are conducted. The number of villages receiving BCC This indicator measures the intervention should be coverage of behavior Records from accumulative over the change communication water service project implementation Villages provided with piped water supply (BCC) message on water and providers period. Thus, the under the Project covered by nutrition- sanitation that is Annually MIH and BCC indicator is calculated sensitve behavior change communication implemented in the areas implementati with the cumulative campaign for water and sanitation where piped water supply is on report number of villages provided by the project. The receiving BCC figure will be cumulatively intervention and the calculated. cumulative number of villages under service areas of water supply supported by the project over the implementation period of the project. Communes with identified joint The indicator captures the Water Water service provider Annually MIH and water operators interventions for water supply, sanitation geographical convergence service will need to record the and nutrition for water supply and provider service areas, areas Page 42 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) sanitation intervention, and record of receiving BCC nutrition intervention in the coverage intervention and a areas where water supply is areas of system to support provided under the project. water supply household with The joint interventions that and BCC children under 2 years will classify a commune as intervention. old. "convergence" commune will be identified during the project implementation together with health sector. The indicator measures the financial readiness of the Mondul Kiri and Stoung Financial Waterworks to be ready to reports and be made autonomous. Mondul Kiri and Stoung operational Readiness will be measured Waterworks will submit reports of MIH, Mondul Kiri Mondul Kiri Waterworks and Stoung by two criteria: (i) the ability the financial report and Annually the Mondul Waterworks and Stoung Waterworks achieve financial readiness to of the waterworks to operational report to Kiri Waterworks be made autonomous achieve operational cost MIH for reporting on Waterworks coverage, and (ii) the this indicator. and Stoung existence of ring-fenced Waterworks bank accounts under the control of the management of the waterworks (as signatories). Supervision consultants This indicator measures the Supervision shall prepare quarterly additional length of consultant Sewer network constructed in Siem Reap Quarterly progress report for MPWT secondary and tertiary progress City the MPWT on the sewer lines constructed with report construction progress. project support Page 43 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) This indicator measures the volume of wastewater collected and conveyed for proper treatment at the wastewater treatment plant in Siem Reap city, thus also the reduction in pollution to the environment otherwise posed by this volume of wastewater. The wastewater treatment plant Treatment plant currently receives limited to operational data no wastewater due to the (including data of the damage to the main trunk Wastewater volume of wastewater sewer. This main trunk treatment Daily volume of wastewater collected and Semi- pumped into the sewer is being replaced with plant MPWT transported to wastewater treatment annually treatment plant the support of ADB operational plant in Siem Reap City everyday), calculated financing. While it is difficult data on an average daily to measure the wastewater volume over a six attributable to the ADB's month period. replacement of trunk sewer and to the Bank's installation of secondary and tertiary sewer network, this indicator will measure the total volume of wastewater entering the treatment plant. This total wastewater volume is in effect the results of both the Bank's investment (which focuses on collection of Page 44 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) wastewater from households) and the ADB's investment (which focuses on transferring the wastewater collected from households to the treatment plant). The indicator measures the accountability of Siem Reap Wastewater Treatment Plant Unit towards citizens. Social Accountability Framework follows three processes: (1) service providers publish service Project standard, (2) community progress Siem Reap Wastewater Activities identified in joint action plan scorecards are conducted, report and Treatment Plant Unit, through social accountability framework and (3) joint action plan is Annually Siem Reap with the support of MPWT for Siem Reap Sewerage and Wastewater developed between service Wastewater consultant, will prepare Treatment Plant Unit implemented provider and community. Treatment its own record. Thus, implementing the Plant Unit activities in the action plan is key for the accountability. Implemented activities include activities whose implementation is ongoing and activities whose implementation is completed. Female participants in community The indicator measures the Project Progress report Annually MPWT scorecards who provide service quality women participation in the progress provided by IA during feedback to Siem Reap Sewerage and monitoring of performance report the project Page 45 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Wastewater Treatment Plant Unit of service provider and implementation. Siem through social accountability framework actively provide feedbacks Reap Wastewater for improvement. Social Treatment Plant Unit, Accountability Framework with support of follows three processes: (1) consultant will have its service providers publish own record. service standard, (2) community scorecards are conducted, and (3) joint action plan is developed between service provider and community. Thus, implementing the activities in the action plan is key for the accountability. The project will provide technical assistance to MPWT to develop a national wastewater development MPWT to provide the A national wastewater development strategy (which will include, Annually MPWT strategy to the Bank MPWT strategy (including a tariff policy for amongst others, a tariff (and MEF). wastewater services) developed policy) to guide the future development of the wastewater infrastructure in towns and cities in Cambodia. ME IO Table SPACE Page 46 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Page 47 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN COUNTRY: Cambodia Water Supply and Sanitation Improvement Project Project Institutional and Implementation Arrangements 1. The project will be implemented through appropriate existing sector institutions in alignment with sector institutional mandates and in accordance to the government organizational structure and institutional arrangements within the respective ministry. The MIH and MPWT have overall responsibility for the implementation of Component 1 and Component 2, respectively. The MEF is the formal point of contact between the Royal Government of Cambodia (RGC) and the Bank on all financial and legal matters for the Credit for the project and represents the RGC in discussions on these matters. 2. The MIH and MPWT will establish CMU-1 for Component 1 and CMU-2 for Component 2, respectively. CMU-1 and CMU-2 will, for their respective component, lead day-to-day project implementation, undertake fiduciary responsibility such as FM and procurement, monitor project progress, and conduct M&E, ensure compliance to project social and environmental safeguards, prepare project reports, oversee civil works, and coordinate and collect inputs from relevant ministries related to their project component. Apart from implementing Component 2, the CMU-2 is also responsible for overall project coordination, consolidating all project reports, and overall project audits. The schematic project implementation arrangements are shown in figure 1.1. CMU-1 3. CMU-1 will be led by a Component Director (CD-1) assigned by the MIH who, for Component 1 of the project, will be responsible for overall management and administration of the Component 1, ensuring that the PDO is achieved. A Component Manager (CM-1) assigned by the MIH will be responsible for day- to-day activities of project implementation to ensure that the project is progressing according to schedule under Component 1. The roles and responsibilities of CD-1 and CM-1 will be in accordance to the provision of the Government’s SOP and detailed in the POM. 4. The Department of Technical and Project Management (DTPM) of the MIH will provide technical inputs to CMU-1, monitor project progress, and support CMU-1’s project management. The DTPM will also be responsible, in collaboration with the NCDD-S, for ensuring the implementation of the SAF in Component 1. It will support and empower the relevant District Administrations (located within some selected water supply service areas of the project) through provision of TA to assist districts in implementing the SAF. The DTPM will also ensure the delivery of a nutrition-sensitive communication campaign by working with the MOH and the MRD to get relevant technical inputs and guidance and with the district administration to deliver the campaign with the support of TA. The Department of Planning and Data Management will support the project’s M&E, ensuring that the data and information are being collected on time for reporting in CMU-1. The Department of Water Supply Regulations will provide support overseeing private sector engagement in the project, ensuring compliance with the government policy and regulations, preparing contracts, and supporting development of any policy or regulations required to enable more active private sector engagement. Page 48 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) 5. The DAF of the MIH will support CMU-1 in all FM aspects of the project Component 1. The Procurement Unit of the MIH will support CMU-1 in all procurement aspects of Component 1. While the MIH does not have an environmental and social division within the ministry, focal persons for environmental and social safeguards will be nominated by the MIH to support CMU-1 in monitoring the environmental and social safeguards requirement. A gender focal person nominated from the GMAG in the MIH will be responsible for all gender aspects of the project, including ensuring that the gender- related indicators are achieved. 6. CMU-1 is supported by Project Support Team 1 (PST-1) at the provincial level. The team will be assigned by the MIH from the relevant provincial DIH and waterworks directly involved in the project. PST- 1 will provide support to CMU-1 in day-to-day supervision of the civil works in the field, monitoring of activity progress, coordination at the provincial level, community consultation on the project, and reporting to the CM-1 of CMU-1. CMU-2 7. CMU-2 will be led by CD-2 assigned by the MPWT who, for Component 2 of the project, will be responsible for overall management and administration of Component 2, ensuring that the PDO is achieved. The CD-2 will also lead overall project coordination, consolidate project reports for both components and ensure the project audits are undertaken. CM-2 assigned by the MPWT will be responsible for day-to-day activities of project implementation to ensure that the project is progressing according to schedule under Component 2. CM-2 will also support CD-2 in overall project coordination and project report consolidation. The roles and responsibilities of CD-2 and CM-2 will be in accordance to the provision of the Government’s SOP and detailed in the POM. 8. The SMCD of the MPWT will be responsible for technical inputs and quality of Component 2, monitoring of progress of the project, supporting CMU-2’s project management, collecting data and information for M&E, and reporting for CMU-2. The SMCD will also be responsible, in collaboration with the NCDD-S, for ensuring the implementation of the SAF in Component 2. It will support and empower the Siem Reap City Administration through provision of TA to assist the implementation of the SAF. The DoF of the MPWT will support CMU-2 in all FM aspects of the project Component 2. The Procurement Unit of the MPWT will support CMU-2 in all procurement aspects of Component 2. The Environmental and Social Division in the General Department of Planning and Policy in the MPWT will support CMU-2 in monitoring the environmental and social safeguard requirements. A gender focal person nominated from the GMAG in the MPWT will be responsible for all gender aspects of the project, including ensuring that the gender-related indicators are achieved. The Department of Information Technology and Public Relations will be responsible for communications on Component 2 of the project, including disclosure of all relevant project safeguard documents. 9. CMU-2 is supported by PST-2 at the provincial level. The team will be assigned by the MPWT from the Siem Reap DPWT and the Siem Reap SWPTU. PST-2 will provide support to CMU-2 in day-to-day supervision of the civil works in the field, monitoring of activity progress, coordination at the provincial level, community consultation on the project, and reporting to the CM-2 of CMU-2. Page 49 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) SC 10. An SC will be established to provide overall project guidance and coordination. The SC will include high-level representation from the MPWT, MIH, MEF, MOH, NCDD-S, MRD, and other relevant agencies. The Chair of the SC will be nominated by the MPWT. The SC will hold semiannual meetings to monitor overall project progress, facilitate interministerial coordination, facilitate policy discussion, and provide strategic guidance. The MOH will join the SC to provide guidance on the nutrition aspects of the project. The NCDD-S will provide inputs and guidance on the implementation of the social accountability in the projects. The MRD will guide the implementation of the communication campaign for sanitation and hygiene as the MRD is the main developer of the communication package. Subnational Authorities 11. Subnational authorities (that is, district administrations and commune councils) and community facilitators would be engaged to implement the social accountability elements of the project under both Components 1 and 2. District/city administration, with support of TA, will be taking the lead in the implementation of the SAF within their respective areas. The communes/Sangkats will provide coordination support to the district in engaging citizens in the SAF. 12. The district administrations and communes will also coordinate the delivery of nutrition-sensitive communication campaigns for safe water handling and other hygiene practices with the support of TA under CMU-1. Relevant health centers will be engaged at the locality in delivering the communication messages, where relevant. Page 50 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Figure 1.1. Proposed Project Institutional and Implementation Arrangements Page 51 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Financial Management 13. An FM assessment was carried out in June 2018 for the MIH and MPWT to ensure that the FM arrangements were acceptable and in accordance with the Bank Policy and Bank Directive: Investment Project Financing (IPF). The objective of the assessment was to determine (a) the adequacy of the FM arrangements and whether they meet IDA's requirements including budgeting, accounting, funds flow, internal controls, disbursements, financial reporting, and audit arrangements and (b) the need for TA. These FM arrangements are acceptable to the Bank if the project (a) can ensure that the respective DAF/DoF finance staff maintain adequate project FM systems; (b) is capable of correctly and completely recording all transactions and financial information relating to the project; (c) can facilitate the preparation of regular, timely, and reliable financial reports and statements; (d) can safeguard the project’s assets; and (e) can include auditing arrangements acceptable to the Bank. The FM assessment concluded that the MIH and MPWT have acceptable FM arrangements to implement the project. 14. The FM risk for the project is assessed as Substantial. The project has three major risks: (a) limited experience of finance staff related to accounting software and Chart of Accounts (COA) (to be aligned with the Government COA) and maintenance of accounting records, which could lead to delay in preparation and submission of financial reports to the Bank; (b) limited experience of the MIH and the MPWT project team to manage Bank-funded projects and weaknesses in internal controls, which could lead to delay in payments to contractors, suppliers, and service providers and noncompliance with the Financing Agreement; and (c) finance staff of the MIH and MPWT lacking familiarity with the Bank requirements on FM, disbursement, and procurement procedures. These risks will be mitigated by (a) providing FM training to project FM staff, (b) providing TA to the DAF of the MIH and the DoF of the MPWT on FM, and (c) involving the government internal audit agencies of the MIH and MPWT to ensure that the project’s internal control systems are operating satisfactorily according to the SOP/FMM. Table 1.1. Implementation of FM Startup Action Plans No. FM Action Plans Responsible Target Dates Entity 1 Appoint Government FM staff to carry out FM tasks and MIH and MPWT Completed disbursement for the project. 2 Finalize TORs for the national FM consultants for capacity MIH and MPWT Completed building and skills transfer to FM team of the MIH and MPWT. 3 Update project FMMs and ensure they include key MIH and MPWT 6 months after internal control procedures for payments, accounting, effectiveness disbursements, budgeting, and reporting. 4 Purchase and install accounting software and design COA MIH and MPWT 6 months after for the project that is aligned with the Government’s effectiveness new COA with assistance of national FM consultants and the project FM staff to be trained. 5 Project FM staff to be trained on the Bank’s MIH, MPWT and 3 months after requirements for FM, disbursements, and procurement Bank effectiveness procedures 6 Involve the Government’s internal audit agencies to carry MIH and MPWT 6 months after out an ongoing audit program as outlined in the internal effectiveness audit work plan for the MIH and MPWT. Page 52 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) No. FM Action Plans Responsible Target Dates Entity 7 Engage an external audit (that is, audit firm to be MEF, MIH, MPWT 6 months after appointed by the MEF) to annually audit the project effectiveness expenditures (audit fee to paid from Component 2 according to the budget allocated for this purpose). 15. Finance staff and TA. The implementing agencies will have full-time project finance officers from the DAF (in case of the MIH) and the DoF (in case of the MPWT) to undertake overall FM responsibility for each component, which includes coordination and supervision of (a) AWPB preparation, (b) funds flow management, (c) accounting and reporting, and (d) internal controls and auditing. Each component’s finance officer will be assisted by a project accountant, a finance assistant, and a cashier. Considering the potential for scale-up of operations and the limited FM capacity, there may be a requirement for national FM consultants to assist/support in overall FM aspects. Ongoing training and capacity building on FM will be needed during the implementation of the project. 16. Budgeting. The MIH and MPWT will follow the Government’s procedures on how to prepare the AWPB, as outlined in the SOPs and FMM for all externally financed projects and programs in Cambodia issued by Sub-Decree No. 74 ANK.BK, dated May 22, 2012, or any further amendments of the SOP/FMM. Each implementing agency will prepare its respective AWPB related to component expenditures and will present the AWPB to the MEF for approval and then submit for the Bank’s review and to obtain ‘no objection’ from the Bank not later than November 30 of each preceding Fiscal Year. The Government also committed to contribute counterpart funds from the Government’s source of funds to cover salary supplement for the Government staff who are working on the project. 17. Accounting policies and procedures, and internal control. The project will adopt a cash basis of accounting and the COAs of the National Treasury. The MIH and MPWT will use the computerized accounting software, which will be compatible with the Government’s account codes for up to 1 6 digits. The accounting software will be used to record all financial transactions and will be able to generate timely and reliable financial reports, for management information and decision making, and for audit purposes. Supplementary project FMMs and accounting procedures for each component will be prepared to guide the project staff and accelerate project expenditures. A clear set of internal control procedures institutes the FMMs including FM aspects of cash advances/petty cash, reimbursement of expenses made by the provincial project offices related to project activities, payments to contractors, suppliers, service providers, contract management, training category and operating costs, and so on. A clear finance procedure will be included in the FMMs for each component to support the subnational administration’s engagement in implementation of the SAF. The Government’s internal audit agency of the MIH and MPWT will conduct project audit once a year based on their audit work plan/program for each respective component. 18. Fund flow. The MIH and MPWT will each open a separate DA at the NBC to receive funds from IDA. The DAs will be denominated in U.S. dollars and the MIH and MPWT are each authorized to administer their respective bank accounts and make payments to suppliers, contractors, and service providers according to the approved AWPB. The DAs for receiving project counterpart funds from the Government’s source of funds would also be opened at the NBC. If there is any payment related to either Page 53 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) salary top-ups or civil work contracts, payments will be made from the said DAs. Figure 1.2 provides a schematic presentation of the project fund flow. 19. Periodic financial reporting and auditing. The MIH and MPWT are each responsible for preparing IFRs on a biannual (six months) basis and submitting to the Bank within 45 days after the end of each semester. The project’s expenditures are required to be audited annually. The MEF will appoint an external audit firm for the project through the audit bundling exercise managed by the MEF with TORs acceptable to the Bank. The audited financial statements and management letters are required to be submitted to the Bank within six months after the end of each fiscal year. Figure 1.2. Proposed Project Fund Flow Diagram Page 54 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) 20. Disclosure of information. The project will be required to disclose the following on the website of the MIH and MPWT, respectively: (a) audited project financial statements and six-month IFRs and (b) Procurement Plan. 21. Supervision plan. The FM risk for the project is assessed as Substantial. The Bank will conduct a risk-based approach in supervising the FM performance of the project including field visits. In the first year, supervision would be carried out more frequently to enhance FM capacity and set up FM systems, and the subsequent year, the Bank will conduct the supervision mission twice a year. Disbursements 22. Disbursement arrangements. The MIH will have the DA ceiling of US$1,500,000, and the MPWT will have the DA ceiling of US$1,000,000, respectively. The electronic disbursement of funds (Client Connection website) from the Bank is used according to the Disbursement and Financial Information Letter attached to the Financing Agreement. Frequency of reporting eligible expenditures paid from the DA will be quarterly. The project will follow the Loan Handbook for World Bank Borrowers, April 2017, and the Disbursement Guidelines for Investment Project Financing, February 2017. The disbursement methods comprise reimbursement, advance, special commitment, and direct payment. Supporting documentation to the withdrawal application is required for eligible expenditures paid from the DA, including Statement of Expenditures. The advance method is frequently used for disbursement of funds from the Bank and this will allow the project to maximize the use of funds from the DAs. The minimum value of applications for direct payments and reimbursements will be US$300,000 equivalent each for the MIH and MPWT. Table 1.2. Disbursement Categories (Allocation of Credit Proceeds) Category Amount of the Amount of the Percentage of Credit Allocated Credit (in US$ Expenditures to be (in SDR) Equivalent) Financed (inclusive of Taxes) (1) Goods, works, non-consulting services, 21,800,000 30,500,000 100 consulting services, training and operating costs under Component 1 of the project (2) Goods, works, non-consulting services, 17,500,000 24,500,000 100 consulting services, training and operating costs under Component 2 of the project TOTAL 39,300,000 55,000,000 23. Disbursement deadline date. The project will have a disbursement deadline date of four months after the closing date specified in the Financing Agreement. Any changes to this date will be notified by IDA. 24. Reimbursement for activities before effectiveness. Following the signing of the Financing Agreement, the MIH and MPWT will need to prefinance the costs of start-up activities related to procurement process including, but not limited to, advertising expenses for Expression of Interest, Page 55 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Request for Proposal, RFQs, Invitation for Bid, and so on in the estimated amount of US$3,000 (US$1,500 each for the MIH and MPWT) between the date of signing the Financing Agreement and effectiveness. The eligible expenditure for these activities can be reimbursed by the project. Procurement 25. Applicable procurement procedures. Procurement will be carried out in accordance with World Bank Procurement Regulations for IPF Borrowers dated July 1, 2016, revised in November 2017 and August 2018. Procurement under National Procedures will be carried out in accordance with the Government’s Updated Standard Operating Procedures and Procurement Manual for All Externally Financed Projects/Programs, promulgated through the Sub-decree 74, dated May 22, 2012, and subsequent amendments, which is issued pursuant to Article 3 of Government of the Kingdom of Cambodia’s Law on Public Procurement, dated January 14, 2012, subject to the additional provisions that will be included in the Procurement Plan. 26. Institutional arrangements for procurement. The procurement activities for Components 1 and 2 will be supported by the Procurement Unit of the MIH and MPWT, respectively, with the support of individual procurement consultant(s). The POM elaborates the details of procurement arrangements, including responsibilities of each ministry and procurement risk mitigation action plan. It refers to (a) the World Bank Procurement Regulations for IPF Borrowers (July 2016 and revised in November 2017 and revised in August 2018) applicable to this project; (b) the Project Procurement Strategy for Development (PPSD) and Procurement Plan; and (c) Public Procurement Law (January 2012) and SOPs, including the Procurement Manual for all Externally Funded Projects/Programs in Cambodia (Sub-Decree No. 74 ANK. BK of May 2012) of the RGC with the additional provisions for use of national procedures under the Bank- financed projects in Cambodia. 27. Procurement capacity and risk assessment. The MIH and MPWT had implemented a few Bank- financed projects and several other development partner-funded projects, using a separate Project Implementation Unit, based in the ministries’ departments managing the projects. The key identified procurement risks that may negatively affect the procurement implementation of the project include (a) limited knowledge and experience of the MIH and MPWT ’s staff with the Bank’s Procurement Regulations that may cause project implementation delays and non-compliances; (b) possible delay in procurement process during the project start-up phase because of slow technical inputs from concerned departments; (c) possible coordination challenges among implementing agencies and their technical departments; (d) possible delay in internal clearance for Bid Evaluation Committee (BEC)/Consultant Evaluation Committee (CEC)/Procurement Review Committee (PRC); (e) most of the procurement of consulting firms taking significantly longer time than what was scheduled; (f) informal business practices imposing potential negative impact on the procurement; and (g) governance risks associated with conflict of interest, fraud, and corruption, which may adversely affect the efficiency and effectiveness of the project implementation. 28. The risk mitigation measures. The following risks and mitigation measures have been discussed and agreed with the counterparts: (a) Provide procurement training for the MIH and MPWT staff, including initial training during project preparation and in-depth procurement trainings during project implementation and Page 56 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) provision of international and national procurement consultants to assist the MIH and MPWT in carrying out procurement activities. (b) Each implementing agency will assign one focal person for implementation of STEP and monitoring the procurement tracking form. (c) Careful procurement planning and scheduling, and procurement will be advanced as much as possible. (d) Procurement monitoring will be done using STEP. (e) Ensure closer coordination between ministry’s departments and follow up to get technical inputs on time. (f) Each ministry will assign focal persons for coordination purposes within the implementing agency and across the ministries. The coordinating roles and responsibilities of these persons are included in the POM. (g) Implementing agencies will adhere to the service standard included in the POM and procurement tracking form, and sufficient delegation of authority will be provided to the members of the BEC/CEC/PRC. (h) Procurement tracking and monitoring form in the SOP/PM will be used in addition to STEP. (i) All firms, who will be awarded the contracts, will be required to register with concerned ministries according to Cambodian laws and sufficient time will be provided to the firms for such registration. (j) Ensure enhanced disclosure of procurement information, including publication of the annual Procurement Plan and a quarterly summary of the contract award information for all procurement packages on project website and in newspapers. (k) Establish a procurement complaint-handling mechanism consistent with the Procurement Rules and Regulations of the Government and the Bank. 29. Procurement scope under the project as identified in the PPSD. An estimated budget of US$53.5 million would be spent for all procurement activities under this project following the World Bank Procurement Regulations for IPF Borrowers, dated July 2016 and revised in November 2017 and August 2018. Out of this estimated budget, about US$44.7 million would finance improvement of wastewater network and water supply network and treatment facilities; US$6.9 million would finance all consulting services under the project; and US$1.9 million would finance associated goods (technical equipment, lab equipment, office equipment, vehicles, and so on). Based on the analysis in PPSD, the large civil works, and engineering design and supervision consulting services are considered of substantial risk because they are very critical to the project, and of relatively large value. The procurement approach for Works, Goods and Consultant Services was recommended as below: Page 57 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) (a) Civil Works. The market approach for Works under the project is international because the Works of large value will be attractive to both the foreign and national/local contractors. Such approach will also increase the level of competition and allow the MPWT and MIH to have better opportunities to select contractors that have sufficient qualifications/experience to successfully execute the Works and allow the MPWT and MIH better chance to obtain the best value for money. The procurement approach for civil works are summarized in the table below: Attribute Selected arrangement Justification Summary/Logic Specifications Conformance Extension of an existing water supply distribution system, and rehabilitation and retro-fitting of the existing sewerage system in Siem Reap City. Contract Type Traditional Pricing and costing Unit price mechanism Price Adjustments None, fixed price Selection Method Requests for Bids (RFB) Multi-lots in each package. Market Approach Type of Competition a. Open b. International c. National Number of Envelopes/Stages d. Single/Two Envelopes e. Single Stage Pre / Post Post-Qualification Qualification Evaluation of Costs Adjusted Bid Price Prices to be adjusted for any mathematical errors. Evaluation Method Lowest evaluated cost For this type of Works Lowest Evaluated Cost is appropriate. Domestic Preference No (b) Consultant Services. The consulting assignments under the project include both firm and individual consultant assignments and will be procured following the approach below: Attribute Selected Arrangement Summary Justification/Logic Specifications Performance It is appropriate for consulting services. Contract Type Traditional Page 58 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Pricing and Costing Lump Sum or Time based Lump Sum or Time-based will be determined Mechanism as appropriate based on the nature of each consulting assignment. Price Adjustments Yes Price adjustment should be applicable for long term contracts (such as more than 18 months). Form of Contract None specific Standard form of contract will be used. (Terms and Conditions) Selection method a. Request for RFP will be used for all firm consultant Proposals (RFP) assignments. b. Direct Selection The individual consultants will be selected competitively. Selection None Arrangement Market Approach Type of Competition a. Open b. International Number of Envelopes/Stages c. Two Envelopes d. Multi Stage Pre/Post Qualification Shortlist Evaluation Selection a. Quality Cost Based QCBS will be used for relatively large firm Method Selection (QCBS) consultant assignments (over US$300,000) b. Quality Based while CQS will be used for smaller assignment. Selection (QBS) c. Consultant’s Qualifications Based Selection (CQS) Evaluation of Costs Adjusted Bid Price Domestic Preference No Related Criteria Most advantageous Proposal (c) Goods: The procurement approach for goods are summarized in the table below: Attribute Selected Arrangement Summary Justification/Logic Specifications Conformance The goods are mostly of medium and small value and not complex. Additional No sustainability requirement Contract Type Traditional Traditional type of contract is appropriate for this type of goods. Page 59 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Pricing and Costing Lump Sum Lump Sum. Mechanism Price Adjustments None, fixed price Form of Contract None specific No special condition is needed. (Terms and Conditions) Selection method a. Request for Bids Given the goods with simple nature and of (RFB) medium and small value, selection of RFB or b. Request for RFQ method is appropriate. Quotations (RFQ) Selection None Arrangement Market Approach Type of Competition Applying the international market approach as a. Open the market research and experience from b. International previous project shows that some foreign c. National suppliers in the region may be interested in to d. No Competition – supply this equipment; and at the same time Direct Selection there are some local contractors that have Number of capacity and experience to supply this type of Envelopes/Stages goods may be also interested. e. Single/two Envelopes f. Single Stage Pre/Post Qualification Post Evaluation Selection N/A Method Evaluation of Costs Adjusted Bid Price Domestic Preference No Evaluation method Lowest Evaluated Cost For this type of goods Lowest Evaluated Cost is appropriate. 30. Procurement Plan. Based on the PPSD, the first 18-month Procurement Plan for the project has been jointly prepared by the implementing agencies and agreed by the Bank. 31. Use of STEP. STEP, which is a web-based tool for procurement planning and tracking, streamlining and automation, and monitoring and reporting, is applicable to this project. 32. Prior review threshold. The procurement risk under this project is considered substantial after applying the agreed risk mitigation measures. Thus, the prior review thresholds by procurement types are as follows: Table 1.3. Prior Review Thresholds by Procurement Type Type of Procurement Estimated Contract Amounts (US$, millions) Works 10.0 Page 60 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Goods, information technology, and non-consulting services 2.0 Consultants: Firms 1.0 Consultants: Individuals 0.3 33. Bank’s review and implementation support. The procurement supervision will be part of the semiannual project implementation support mission and procurement clinics/training based on the need. In addition to the prior review by the Bank based on the prior thresholds, which are subject to change according to the result of risk assessment carried out during project implementation, the Bank will carry out the annual procurement ex post review on a sample of at least 10 percent of all post review contracts financed by the project. STEP will help the Bank monitor the procurement progress and take appropriate supportive actions in due course. The Excel-based procurement tracking form of the Government will be used by the implementing agencies in addition to the STEP for the government internal procurement monitoring. Environmental and Social Safeguards 34. The implementation of the environmental and social safeguards will follow the project institutional implementation arrangements. The MIH will be the implementing agency for environmental and social safeguard compliance under water supply investments. The MIH will assign two safeguards focal persons. Although the MIH currently has an environmental industry office in charge of monitoring the effluent discharge from the manufacturing industry, it does not have any focal person or division responsible for environmental and social safeguards. However, the MIH has demonstrated interest to institutionalize safeguards with the project support. Some team members in the GDPWS are currently experiencing environmental and social standards through implementing investment projects supported by the ADB and JICA. 35. The MPWT will be the implementing agency responsible for sewerage and sanitation investments. The MPWT has experience in implementing similar projects financed by other international donors including the ADB and JICA. The MPWT’s Environmental and Social Division staff (under the General Department of Planning and Policy), who are assigned to be the safeguards focal persons, have received basic environmental and social safeguard trainings through past donor-supported projects. However, both the MPWT and MIH staff have relied a lot on the assistance of external consultants, and safeguards budget is allocated for continued capacity building to the government safeguards focal persons. Monitoring and Evaluation 36. Under CMU-1, the Department of Planning and Statistics (DPS) of the MIH will be responsible for ensuring that all the M&E requirements under Component 1 are met. The DPS will arrange the M&E and establish the process and mechanism that could facilitate M&E implementation including making use of the current WSMS. The waterworks and relevant provincial departments will support the DPS in collecting data and information to compute the indicators for the interval specified in the Results Framework and Monitoring section. Under CMU-2, the SMCD will be responsible for the M&E under Component 2 and for conducting a relevant gender survey for the project. The Siem Reap SWTPU and relevant provincial departments of public works and transport will support the SMCD in data and information collection. Strategy and Approach for Implementation Support Page 61 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) 37. Risk minimization during preparation. The strategy for implementation support is based on the design of the project and its identified risk profile. The project design (including the project scope and identification of project locations) has considered that the Bank is reengaging in infrastructure investment operation after an absence of a number of years. The implications of reengagement include the need to complement the existing government and development partner programs (project locations and scope not to overlap or contradict these programs) and find mutually compatible principles and processes. During project preparation, considerable efforts have been made to identify key risks. Key project design decisions were made to reduce risks going into project implementation. These include limiting the project’s scope, aligning with the existing government policies, cooperating and coordinating with development partners, and adopting a careful sequencing of activities to identify and implement them at manageable pace, focusing on institutional strengthening in the initial years (particularly for the new implementing agencies’ units). 38. Risks during implementation. Notwithstanding these risk minimization and mitigation measures in project design, significant residual risks will remain during implementation, in particular, stemming from (a) relatively new implementing agencies’ units; (b) new implementation institutional arrangements for the implementing units, that is, mainstreaming into government processes; and (c) implementing agencies’ unfamiliarity with the Bank’s social and environmental safeguards practices. The Bank’s implementation oversight activities will need to meet the Bank’s own fiduciary obligations. In addition, the Bank’s implementation support approach will focus on providing technical support to the implementing agencies to support their efforts to (a) successfully carry out the project activities; (b) meet the fiduciary, environmental, and social safeguards compliance requirements of Cambodia and the Bank; and (c) strengthen their institutional capacities. Implementation Support Plan and Resource Requirements 39. The implementation support approach includes the following: (a) Technical guidance and supervision. The focus of engineering implementation support will be on (i) working closely with the implementing agencies, participating service providers, and the supervision consultants to review and provide technical advice on designs and specifications (including the normal reviews of bidding documents) and (ii) working closely with the implementing agencies, participating service providers, and the supervision consultants to review ongoing TA and physical works and provide advice on technical issues arising. The support to enhance the quality of certain aspects of the TA provisioned in each component will be also provided by engaging Bank’s specialist in specific areas including public-private partnership specialist, and other specialists as required. (b) Safeguards. The Bank’s supervision team includes an environmental safeguards specialist and social safeguards specialist. The specialists will lead the safeguards supervision and monitoring of the project. Specific specialists will be drawn in on a short-term as-needed basis. The Bank team will supervise implementation of the social and environmental management instruments and provide guidance to the implementing agencies to address any issues. Page 62 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) (c) Fiduciary. Bank FM supervision will generally be conducted at least twice a year or as the needs arise, based on the risk assessment of the project. The supervision objective is to ensure that FM systems are adequately maintained throughout the life of the project. The supervision will include a review of overall operation of the FM system, including transaction testing and other areas deemed necessary during supervision. Capacity-building needs will be assessed on an ongoing basis and addressed in collaboration with the implementing agencies. In addition to the prior review to be carried out by the Bank, procurement supervision missions will be carried out for post review of procurement activities every 12 months. The post review sampling ratio will be 10 percent of contracts. Table 1.4. Focus of Implementation Support Time Focus Skills Needed Resource Estimate Partner Role Year • Institutional capacity • Sector technical specialist US$150,000 per Coordination 1–2 building (policy, institutional, public- year for common • Identification of suitable private partnership, approaches scheme locations for small- regulations, and engineering) scale water supply schemes • Procurement • Private sector participation • FM model • Safeguards • Design of water schemes • Design of sewerage networks (Siem Reap City) • Assessments of small-scale water supply schemes and crowding in of private sector • Technical and procurement reviews • Consultancy and construction supervision • Fiduciary (FM and procurement) training • Safeguards training Year • Midterm review at the • Sector technical specialist US$150,000 per Coordination 3–5 middle of Year 3 (policy, institutional, year for common • Institutional capacity regulations, and engineering) approaches building • Procurement • Consultancy and • FM Consultation construction supervision • Safeguards and feedback for midterm review Closing Drawing lessons learned and M&E US$130,000 Consultation mainstreaming of good Sector technical specialist and practices (policy, institutional, feedback for regulations, and engineering) ICR Page 63 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Table 1.5. Skills Mix Required Skills Needed Number of Staff Number of Trips Comments Weeks (per year) (per year) Task team leader 6 2 Based in region Co-task team leader 6 2 Based in region Water and sanitation engineer 2 2 International expert (international) Water and sanitation engineer 8 2 Based in country (national) Public-private participation 2 2 Based in region specialist Water resources specialist 3 2 Based in country Environmental specialist 2 2 Based in region Social (including indigenous 2 2 Based in region/DC people) specialist FM specialist 3 2 Based in country Procurement specialist 3 2 Based in country Communications specialist 2 1 Based in country Operational support 12 n.a. Based in country Page 64 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) ANNEX 2: DETAILED PROJECT DESCRIPTION COUNTRY: Cambodia Water Supply and Sanitation Improvement Project 1. Expanding access to services and raising the quality of services to support the effort to meet the SDG targets. The ultimate objective is to increase access to, and improve the quality of, water supply and sanitation services at the service provision level as well as improve hygiene behavior and practices in the communities served. The focus is on urban areas that are not yet provided with safely managed sanitation and water supply services. Safely managed water service is defined as improved drinking water source which is located on premises, available when needed, and free from fecal and chemical contamination. Safely managed sanitation service is defined as improved sanitation facility, which is not shared with other households and where excreta are safely disposed in situ or transported and treated off-site. This will support the effort to increase the quality of service provision toward meeting SDG thresholds, as well as expanding service provision toward universal access and addressing inequality of access and standards of service provision between different areas. 2. The project will complement the support to the water and sanitation sector that is already provided through ongoing and planned Government and development partners support programs. There has been numerous and substantial support from development partners (including the Bank) in the WSS sector in Cambodia, both in the form of infrastructure investments and TA. Over the years, several development partners have focused on supporting infrastructure expansion in Phnom Penh, Siem Reap City, and moving to cover other major towns. Others focused on providing TA and supporting financing instruments/intermediaries for the provision of piped water services through the domestic private sector. See box 2.1 for further details of these supports. Further investments are needed, however, to keep up with demand. Many people living within the service area45 of service providers, especially those who reside in areas not immediately within the vicinity of the water treatment plant, are still without access to piped water. They often use alternative water sources such as borehole and surface water, which in many cases dry up in the dry season, or purchase from water vendors at a price that is four to five times more than the water tariff provided by the waterworks. Box 2.1. Summary of Development Partners’ Support to the Urban WSS Sector Many donors are actively supporting the urban water supply sector in Cambodia. The ADB, JICA, and AFD have focused on financing the expansion of the water production capacity and service provision of the existing waterworks in Siem Reap City, provincial cities, and district towns. Meanwhile, the AFD, DFAT, and the Bank are supporting the improvement of private sector provision. The AFD and the Bank’s TA to operators, coupled with an AFD/EU scheme of concessional loan and risk guarantee through a commercial bank, has initiated a new lending practice of revenue-and-asset-backed collateral, reducing physical asset only collateral requirements. DFAT is providing commercial viability gap financing to unlicensed private operators who seek to formalize and invest in expansion of water treatment capacity and distribution networks, and to the new investment in greenfield sites. 45Service area is an area within which a water service provider is supposed to provide piped, potable water services to customers. The service area is granted through a license regulated by the MIH with indefinite duration for public waterworks and the duration of 20 years for private water service provider. Page 65 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Since the close of the Bank’s last water sector lending operation in FY11, the Bank provided TA in recent years, focusing on government regulatory function in the sector and the private sector water industry. The Bank played a key part in the development of key water sector regulations aiming to provide a better framework for private sector participation and improved oversight by MIH. The TA supported MIH in the development of the Regulation on Procedure for Issuing, Revising, Renewing, Suspending and Revoking Permit for Water Supply Business ( Prakas No. 461 MIH/2014 dated 29 May 2014) and the Regulation on the Determination of the Water Tariff to be imposed on consumers of water service providers (Prakas No. 069 MIH/2016 dated 04 March 2016). The former specifies the obligations of the water service providers in meeting government requirements on water quality and other performance standards. The latter provides for the setting of water tariffs to consumers considering, among others, reasonable return on investment, full-cost recovery, and pro-poor tariff measures.46 Additionally, the Bank’s TA supported private water operators in developing business plans and loan proposals for expansion of the network, helping to build the capacity of private water operators to improve their operational, business, and management capacity and increase their likelihood to access to finance. The program was delivered through the private sector water supply industry association, that is, Cambodia Water Supply Association (CWA). The CWA was established in 2011 and has grown its membership base to about 144 water operators (as of March 2018), which covers 65 percent of all schemes licensed by the MIH. It engages in a regular policy dialogue with the MIH. Currently, the Bank has an ongoing TA program to support, among others, (a) the development of the WSMS to track the performance of water operators, (b) scoping of the investment potential in some provinces for private sector engagement, and (c) continuing the capacity-building program to professionalize private water operators. Through the Bank’s TA support, it is expected that the private operators which are currently active in providing water supply to many communities throughout the country would improve their performance resulting from improved regulatory function of the MIH and the capacity development provided under the TA. This performance improvement could lead to improving water quality in communities served by those water operators. In urban sanitation, the ADB, JICA, AFD, and GGGI have been active in supporting urban sanitation sector (UNICEF, the Bank, and various nongovernmental organizations [NGOs] have been active in rural sanitation). The existing wastewater treatment and trunk sewers in Siem Reap City were constructed with the support of the ADB, AFD, and the Korean Government, while the ADB supported the development of existing sewerage system in Preah Sihanouk Ville. The ADB is currently providing further investment support to replace the damaged trunk sewer in Siem Reap City. The GGGI, on the other hand, has been supporting the Government in preparing the green growth development plan along with associated proposed investment including wastewater. The GGGI has completed the green growth development plan for Phnom Penh and is preparing similar plans in seven other secondary cities (Siem Reap, Battambang, Preah Sihanouk Ville, Kep, Kampong Cham, Suong, and Bavet). Specifically, the GGGI has offered support to the Government for the assessment of the business model for FSM services in Siem Reap City. Recently, the Interdepartmental Syndicate for the Sanitation of the Paris Urban Agglomeration (SIAAP) has also offered support to the Siem Reap authorities to study and support the business and commercial aspects of FSM. The Bank will coordinate and collaborate with these partners, where the project will build on their respective support to strengthen the FSM value chain in Siem Reap City. 3. Although development partners’ support has been substantial, there has been little coordination between the support provided by the various development partners, as well as between development partner and government programs. This is particularly the case at the overall sector planning and strategic level. The MIH has recently reconvened periodic urban water supply stakeholders’ meetings to begin to address this issue. The MPWT is also in the process of setting up separate wastewater working group as platform for coordination. In support of these efforts by the Government to improve 46Report on the TA can be found at http://documents.worldbank.org/curated/en/863331468222278129/Strengthening- sustainable-water-supply-services-through-domestic-private-sector-providers-in-Cambodia. Page 66 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) coordination and overall sector development planning, the project will provide TA to the MIH and MPWT to support the development of the urban WSS strategies and investment plans, respectively. 4. The project will adopt nutrition-sensitive approaches and seek cross-collaboration with nutrition-related efforts of the Government and other development partners. The project will emphasize pro-poor and nutrition-sensitive approaches, developing mechanisms to target safe water provision to poor households and households with children under 2 years of age and communication programs with common water, health, nutrition, and hygiene messaging. Where possible, areas identified to be suitable for piped water supply investments which are also within the project scope of the Bank’s proposed nutrition project will be prioritized. See box 2.2 for further details of the government and development partner support to the nutrition agenda in Cambodia. Box 2.2. Summary of Government and Development Partner Support to the Nutrition Agenda The formulation of national policies and strategies with regard to food security and nutrition in Cambodia is undertaken by the Technical Working Group on Food Security, Nutrition, and Social Protection (TWG-FSN&SP), established in 2004. The TWG-FSN&SP is co-chaired by Cambodia’s CARD and the Ministry of Planning. The TWG- FSN&SP is co-facilitated by the WFP and the Food and Agriculture Organization. Members of the TWG-FSN&SP include relevant line ministries, donor agencies, development partners, and NGOs. Line ministries represented are the Ministry of Agriculture, Forestry, and Fisheries; Ministry of Land Management, Urban Planning, and Construction; Ministry of Education, Youth, and Sport; MoH; Ministry of Water Resources and Meteorology; Ministry of Women’s Affairs; and MRD. In addition to the Bank, development partners’ representation includes U.S. Agency for International Development (USAID), DFAT (Australia), the Canadian International Development Agency, the EU, Federal Ministry for Economic Cooperation and Development (BMZ), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), JICA, United Nations Development Programme, UNICEF, and the WHO. NGOs represented are Save the Children, Plan International, Cooperation Committee for Cambodia, Helen Keller International, Oxfam GB, MediCam, Partners for Development, and German Agro Action. In 2015, the TWG- FSN&SP established a sub-working group with the responsibility to integrate WASH into the nutrition agenda (sub- TWG Nutrition and WASH). Cambodia became a member of Scaling up Nutrition (SUN) Movement in July 2014 and has active civil society and donor networks. USAID, EU, Germany, and the Bank are the main donors participating in the SUN Donor Network. The 2016 National Nutrition Report highlights 19 agencies (mostly national/international NGOs) supporting activities outlined in the Fast Track Roadmap for Improving Nutrition with a total of US$14.7 million in support in Cambodia. The NOURISH project (USAID financed, implemented by Save the Children, Manoff Group, and SNV) is the largest nutrition project, allocating over US$16 million over 5 years to be implemented in over 500 villages within Siem Reap, Battambang, and Pursat provinces. USAID also supports the largest investment in the nutrition- specific space, with University Research Co. providing institutional support to 450 of 585 health centers in nine provinces. Other UN and NGO partners are most commonly engaged on activities such as BCC to households with young children under 2 years (cooking demonstrations, community education sessions, mothe rs’ groups, and so on) and screening and referral of severe acute malnutrition. Though UNICEF is a key technical partner to the National Nutrition Programme, service delivery, and implementation support occurs only at a limited scale and is focused largely on the identification, treatment, and management of severe acute malnutrition. The EU, USAID, and International Fund for Agricultural Development (IFAD) are active in the agriculture and food security space, where nutrition is sometimes embedded as a sub-activity within select projects. The Bank is currently preparing a nutrition-focused project (Cambodia Nutrition Project, P162675) to help scale up the national response to maternal and child undernutrition. The project aims to improve the utilization and quality of nutrition, immunization, and other essential health services known to enhance maternal and child health and nutrition outcomes in intervention areas of Cambodia. Page 67 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) 5. Historically, public funding for investing in expanding water supply services in the remaining areas is limited and moving toward meeting the SDG requirement would require significant investment that is beyond the public sector financial capability. The project will explore options for using project finance to leverage private sector participation in financing and operating small-scale piped water supply schemes, wherever feasible, in more challenging areas of the country. This approach will diversify the investment model for piped water supply across spectrum of commercial viability, accelerating service expansion. 6. The project will include aspects of floods and drought risks in the design. Given that water resource is generally vulnerable to climate change, assessment of the sustainability of water sources (including catchment protection) and considerations for diversified/backup water sources would be carried out explicitly in response to the localized threats climate change poses to the water supply. Demand management activities in areas where water consumption is high would be also conducted to minimize negative effect from drought risks. Optimal design for climate resilience of infrastructure, energy efficiency in operation, and reduction of pollution in flooding events would be pursued. 7. The project builds on the experience of and lessons from previous Bank water projects: Urban Water Supply Project (P045629),47 Provincial and Peri-Urban Water and Sanitation Project (P073311),48 Bank-executed TA,49 and other global studies. Box 2.3 summarizes some key lessons. Box 2.3. Summary of Lessons from Previous Experience Through the past and ongoing engagement, some lessons learned that are useful for this operation are the following: • TA and capacity building is needed to achieve sustainable outcomes. Experience from the previous projects showed that providing TA to the Government on project operation including technical and fiduciary aspects would help reduce associated risks during project implementation. Because the GDPWS has been recently established, such support is even more relevant. In addition, considering capacity challenges in the waterworks, infrastructure investment alone may not lead to better service provision. Specific trainings on technical aspects and business management would be important to the overall performance for the waterworks. • Sustainability of institutional arrangement and the regulation at the sector level should be ensured. The learning from previous projects was that the absence of the legal and regulatory framework does not support the sustainability of the water supply schemes. In a previous Bank-financed project, 11 water supply schemes were developed through private sector involvement under Design, Build, and Lease contract and Output-Based Aid contract. Currently, only few of them are reported to be operating with a reasonably good performance, while the rest are facing sustainability issue, indicating the importance of strengthening regulation in making water service sustainable. Thus, supporting the Government in infrastructure investment needs to come hand in hand with the sector-level support, where possible. Such support could be important to support and sustain the investment made. • Urban sanitation has historically been focusing on provision of sewer and wastewater infrastructure, with little attention on holistic service chain of sanitation. Introducing the concept of sanitation service 47 Closed in FY04, ICR rating Highly Satisfactory. 48 Closed in FY11, ICR rating by the Independent Evaluation Group was Moderately Unsatisfactory. The project fell short of attaining its expected outcomes and contributed to the MDGs in a very modest way, reflecting its limited scale. Efficiency of the investments is also modest, and there were fiduciary issues as well as operational and administrative inefficiencies. 49 Ibid. 21 Page 68 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) chain in the investment project could generate useful policy discussion that could benefit the sector over the long run. 8. The proposed project has two components. One component each will support (a) provincial water supply in selected towns and communes and (b) provincial sanitation improvement in Siem Reap City. Each component is in turn subdivided into an infrastructure investment subcomponent and an associated institutional strengthening, policy, and project implementation subcomponent. Component 1: Provincial Water Supply 9. This component is focused on supporting the expansion of water supply services to selected urban areas. It will support the augmentation and expansion of water distribution networks in selected main provincial towns and the development of small-scale piped water supply systems in selected communes outside the main provincial towns that are not yet served but where the population has reached the size and density suitable for piped water supply. While the project will finance necessary elements of water supply systems in those areas, private sector financing and operations of small-scale piped water supply systems will be leveraged where possible. Apart from project implementation and management (including engineering design and construction supervision) support, TA will be provided to support (a) the development of urban water supply strategy and investment plan at the national level; (b) improvement of the capacity and performance at the service providers level, including their ability to serve poor households and households with children under 2 years of age; and (c) promote safe water handling and good hygiene practices at the beneficiaries’ level. Component 1 is subdivided into (a) Subcomponent 1.a: Water supply infrastructure development and household connections and (b) Subcomponent 1.b: Project management and institutional strengthening. (a) Water supply infrastructure development and household connections (i) Mondul Kiri Water Supply Phase 1 (Network Expansion). Support for the construction of the expansion of the existing distribution network of about 47 km in Saen Monourom Town to fully use the current installed production capacity. (ii) Mondul Kiri Water Supply Phase 2 (Additional Production and Network Expansion). Support for the construction of a new (additional) production and distribution network in Saen Monourom to supply new customers. (iii) Stoung Water Supply (Additional Production and Network Expansion). (including Geotechnical investigations for the groundwater options for the Stoung urban area). Support for the construction of a new (additional) production of approximately 5,000 m3 per day and distribution network of about 60 km in Stoung to supply new customers covering the remaining population in the Stoung waterworks’ area of coverage (estimated 56,000 people) (iv) Small-Scale Piped Water Supply. Support for the construction of necessary elements of small-scale piped water supply schemes in various communes. Support is expected to commence with four communes in Phnum Proek District in Battambang Province, with others to be identified during project implementation. Page 69 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) (b) Project management and institutional strengthening (i) Preparation and design of Phase 2 water supply systems in Saen Monourom Town and Stoung District. Support for the development of feasibility studies for the further expansion (including additional production) of the water supply systems in Saen Monourom Town and Stoung District. If the expansion is found to be feasible, follow- on detailed engineering designs, construction ready drawings, bills of quantity, engineer’s cost estimates, and the development of civil works bidding documents for the additional water supply systems in Saen Monourom Town and Stoung District. (ii) Design of small-scale piped water supply systems. Support for the development of feasibility studies for proposed small-scale piped water supply schemes in various locations (to be identified during project implementation). If found feasible, follow-on detailed engineering designs, construction-ready drawings, bills of quantity, engineer’s cost estimates, and the development of civil works bidding documents for these schemes. (iii) Development of screening and option assessments for small-scale piped water supply systems. Support for the development of a technical and financial screening mechanism/protocol, consider options for private and/or public financing, O&M, and to develop feasibility studies, detailed engineering designs, bidding documents, and contractual documents as appropriate. (iv) Development of water connection (output-based) fund and program. Support for the review and assessment of the suitability of and options for output-based programs aimed at increasing water connection to poor households, water connection to nutrition sensitive households (that is, households with children under two years) followed by the development of the program(s). (v) Construction supervision for water supply works. According to the Bank operational procedures and guidelines, independent third-party engineering consultancy supervision of the construction activities are mandated. Construction supervision will include the supervision and monitoring of the adherence to project safeguards requirements (including the requirements of Environmental and Social Impact Assessment [ESIA], Environmental Health and Safety [EHS], and other applicable instruments). (vi) Review the operational status of Stoung and Mondul Kiri waterworks. Support to review the technical and commercial operational status of Stoung and Mondul Kiri waterworks, review existing and planned capacity strengthening programs of development partners and the Government, and develop and recommend capacity- strengthening support activities to be considered for these service providers. (vii) Project management TA for the MIH. Support with a range of individual consultancy services in the areas of infrastructure development planning, engineering, FM, procurement (including specialists to advise on specific procurement evaluations, as Page 70 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) necessary), environmental and social management, and project implementation and management (including monitoring, evaluation, and reporting). (viii) Communications and promotion of water safety and other hygiene behavior (BCC package implementation). A Bank TA is ongoing to support the development of a child- centered and focused WASH Behavior Communications Campaign (BCC) package. The assessment of suitable implementation arrangements at the local level is also ongoing. This project communications support will build on the Bank TA to further develop a comprehensive campaign to promote the protection of water sources and safe handling and treatment of potable water at home through evidence-based behavioral change training and communications. The project will subsequently support the implementation of the campaign. Where the campaign is implemented in communities also supported by the Bank’s proposed Cambodia Nutrition Project,50 campaign and community facilitation activities will be coordinated (including targeting households with children under the age of two, using common institutions and facilitators). (ix) Development of water sector policies, regulations, and/or investment roadmaps. Support to review existing sector strategies, policies regulations, and development plans. This is expected to be followed by the development of an urban water supply strategy and investment roadmap, including the formulation of sector priorities, cost recovery policies (for example, tariff and subsidies) and service provision management framework. It is expected that this activity will seek to assess, update, and/or integrate/amalgamate various existing strategy, policies, regulations, guidelines, and so on into an integrated and cohesive set of strategy, policy, regulations, and/or investment roadmaps. (x) Training and capacity building for water supply. Support to develop a training and capacity-building (including performance improvement) plan for the staff of participating provincial waterworks, relevant officials of the provincial government, DIH, and MIH, followed by support for the implementation of the plan. Priority areas for capacity building include O&M of water supply systems (including business and commercial operations, and financial, procurement, and contracts management), gender, social accountability, nutrition, and stunting. Sector planning and strategies, technical and economic regulation will also be relevant particularly to the provincial government, DIH, and MIH. It is expected that support for training and capacity- building activities will be provided against an annually approved training and capacity- building plan (as an indicative guideline, the cumulative expenditure for this activity should be not more than US$100,000), which may include activities such as targeted training, workshops, courses, and study tours. (xi) Adapt and design social accountability tools to raise citizen awareness, conduct citizen monitoring, establish, and facilitate implementation of joint action plans for water supply. Support will be given to develop a social accountability package of instruments, adapted to the sector but consistent with the joint Government-Civil 50 P162675, planned for Board approval in Q3/FY19. Page 71 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Society SAF, to be implemented by water supply service providers supported by the project. At a minimum, service providers will publish their service standards, conduct citizen scorecard exercises, develop joint action plans, and implement these plans. Support will be given for service providers to implement the instruments. This may include the engagement of subnational authorities (that is, districts and communes), consultancy services, and community facilitators to implement the social accountability elements of the project. (xii) Incremental operating costs for implementation of the water supply component. Limited support to the incremental running cost reasonably incurred by the MIH on account of project implementation, management, M&E, and reporting (subject to a cumulative ceiling). Expenses may include utilities and supplies, bank charges, office rentals, communications, media campaigns, stationery, advertising expenses, vehicle operation, maintenance, and insurance, and domestic travel costs but exclude salaries, fees, honoraria, and bonuses of members of the recipient’s civil service. (xiii) Provision of equipment and goods to support the project implementation and to improve the operations of the water supply facilities supported by the project. Support will be provided to equip CMU-1 with necessary equipment for the day-to-day implementation of the project including office equipment, furniture, vehicles, accounting software, and so on. Water service providers will also be supported with necessary laboratory equipment, O&M and/or safety equipment, and so on that could help them constantly improve technical and operational performance and quality of service. Component 2: Provincial Sanitation Improvement 10. This component is focused on supporting the development and construction of secondary and tertiary sewers to the existing main sewer transmission lines in Siem Reap City, to enable household and businesses to connect directly to the city sewerage system. It will also support the rehabilitation and the augmentation of the existing sewerage system (consisting of the existing wastewater treatment plant and primary trunk sewers) to improve its operational efficiency, including rehabilitation and upgrading of sewage pumping stations and fecal sludge receiving and management systems. Apart from project implementation and management (including engineering design and construction supervision) support, TA will be provided to support (a) the development of urban wastewater strategy and investment plan at the central level, (b) improvement of the capacity and performance of the Siem Reap SWTPU at the service providers level, and (c) a program of communications and promotion to encourage households and businesses to connect to the sewerage system. Given that the MPWT will lead the overall coordination for the project, limited support will also be provided to support the project coordination and to undertake project audits. Component 2 is subdivided into (a) Subcomponent 2.a: Sanitation infrastructure development and household connections and (b) Subcomponent 2.b: Project management and institutional strengthening. (a) Sanitation infrastructure development and household connections Page 72 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) (i) Siem Reap City secondary and tertiary sewer construction. Construction of secondary and tertiary sewer network and connection sewers to enable household connections in Siem Reap City areas which are in the vicinity of three existing main interceptor sewer pipelines. (ii) Rehabilitation of the three wastewater pumping stations. Construction to refurbish/upgrade three existing wastewater pumping stations (technical assessment of refurbishment needs ongoing). (iii) Augmentation and upgrade of the sewage treatment plant (including the sludge receiving facility). Construction to upgrade, augment, or modify the Siem Reap SWTPU to improve its performance. If needed, the plant will also be augmented with small sludge dumping tanks, with at least two parallel cells (to facilitated continued operations while cleaning), aimed at improving the overall septage management system. (b) Project management and institutional strengthening (i) Preparation and design of remaining packages for Siem Reap sewer construction. Support for the detailed engineering designs, bills of quantity, engineer’s cost estimates, construction grade drawings, and bidding documents for the construction of secondary and tertiary sewers to be supported under the project. Environmental and social safeguards instruments will also be prepared. (ii) LIDAR mapping/digital elevation model for Siem Reap for future sewer network design. Support to procure a LIDAR-based Digital Elevation Model of a sufficient resolution for a suitable area of interest in Siem Reap City, to aid future sewer network design, other urban services infrastructure as well as the overall urban development planning of the city. (iii) Construction supervision for sanitation works. According to the Bank operational procedures and guidelines, independent third-party engineering consultancy supervision of the construction activities are mandated. Construction supervision will include the supervision and monitoring of the adherence to project safeguards requirements (including the requirements of ESIAs, EHS, and other applicable instruments). (iv) Project management TA for the MPWT. Support with a range of individual consultancy services in the areas of infrastructure development planning, engineering, FM, procurement (including specialists to advise on specific procurement evaluations, as necessary), environmental and social management, and project implementation and management (including monitoring, evaluation, and reporting). (v) Sewer connection program. Support to develop and implement a sewer connection program in Siem Reap City. The program could include the communications campaign to encourage households and other premises to connect to sewer systems in Siem Reap Page 73 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) City, social mobilization to increase community ownership and responsibility, and other means to increase connections. While regulations require premises near sewer lines to be connected,51 the communications campaign and social mobilization are expected to leverage the regulatory requirements, to couple with behavioral techniques to convince households of the benefits and importance of their wastewater being collected and property treated before disposal into the environment. (vi) Development of sanitation sector policies, regulations, and/or investment road maps. Support to review existing sector strategies, policies regulations, and development plans. This is expected to be followed by the development of an urban sanitation strategy and investment roadmap, including the formulation of sector priorities, cost recovery policies (for example, tariff and subsidies), and service provision management framework. It is expected that this activity will seek to assess, update, and/or integrate/amalgamate various existing strategy, policies, regulations, guidelines, and so on into an integrated and cohesive set of strategy, policy, regulations, and/or investment road maps. (vii) Training and capacity building for sanitation. Support to develop a training and capacity-building (including performance improvement) plan for the staff of the SWTPU, relevant officials of the provincial government, DPWT, and MPWT, followed by support for the implementation of the plan. Priority areas for capacity building include O&M of sewerage systems (including business and commercial operations, and financial, procurement, and contracts management) and management of fecal sludge services including collection and treatment, gender, social accountability, nutrition, and stunting. Sector planning and strategies, technical and economic regulation will also be relevant particularly to the provincial government, DPWT, and MPWT. It is expected that support for training and capacity-building activities will be provided against an annually approved training and capacity-building plan (as an indicative guideline, the cumulative expenditure for this activity should be not more than US$100,000), which may include activities such as targeted training, workshops, courses, and study tours. (viii) Project coordination. Support with a range of individual consultancy services, to provide overall coordination support, if needed. (ix) Project audit. Support for required annual project’s expenditure audit over the implementation period of the project. The project audits will be conducted by an external audit firm retained through the audit bundling exercise managed by the MEF with TOR acceptable to Bank. (x) Adapt and design social accountability tools to raise citizen awareness, conduct citizen monitoring, establish, and facilitate implementation of joint action plans for sanitation. Support will be given to develop a social accountability package of instruments, adapted to the sector but consistent with the joint Government-Civil 51 Sub-decree on management of drainage system and wastewater treatment plant system issued on December 25, 2017. Page 74 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Society SAF, to be implemented by wastewater service providers supported by the project. At a minimum, service providers will publish their service standards, conduct citizen scorecard exercises, develop joint action plans, and implement these plans. Support will be given for service providers to implement the instruments. This may include the engagement of subnational authorities (that is, districts and communes), consultancy services, and community facilitators to implement the social accountability elements of the project. (xi) Incremental operating costs for implementation of sanitation component. Limited support to the incremental running cost reasonably incurred by the MPWT on account of overall project coordination and project implementation, management, M&E, and reporting (subject to a cumulative ceiling). Expenses may include utilities and supplies, bank charges, office and meeting room rentals, communications, media campaigns, stationery, advertising expenses, vehicle operation, maintenance, and insurance, and domestic travel costs but exclude salaries, fees, honoraria, and bonuses of members of the recipient’s civil service. (xii) Provision of equipment and goods to support the project implementation and to improve the operations of the selected sanitation service providers including Siem Reap SWTPU. Support will be provided to equip CMU-2 with necessary equipment for the day-to-day implementation of the project including office equipment, furniture, vehicles, accounting software, and so on. Selected sanitation service providers will also be supported with necessary laboratory equipment, O&M and/or safety equipment, and so on that could help them constantly improve technical and operational performance and quality of service. Page 75 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) ANNEX 3: ECONOMIC AND FINANCIAL ANALYSIS COUNTRY: Cambodia Water Supply and Sanitation Improvement Project A. Introduction 1. Economic and financial analyses were carried out for the following subprojects: (a) Mondul Kiri water supply and (b) Siem Reap wastewater. 2. The objectives of the analyses were to (a) assess the financial situation of the service providers, (b) forecast the financial performance of the subprojects for 20 years, (c) determine the economic viability of the subprojects, and (d) provide recommendations for key variables to be monitored during supervision through sensitivity and switching analyses. B. Methodology and Assumptions 3. The evaluation was conducted using a comparison of the without-project and with-project scenarios. The assumptions used in the evaluation are as follows: (a) Economic and financial analyses are undertaken at constant 2017 prices. (b) The exchange rate used is KHR 4,000 per US$1.00. (c) O&M costs are based on the historical average unit costs, adjusted for economies of scale. Replacement cost set-asides are estimated based on historical depreciation expenses and corresponding assets’ useful life. (d) The collection rate is kept constant at the 2017 level. (e) The tax rate is assumed to be zero. (f) In the economic analysis, the capital costs are converted to their economic values using the appropriate conversion factors: tradable goods are converted using the shadow exchange rate factor of 1.10; for non-tradable goods, a conversion factor of 1.00 is used; a shadow wage rate factor of 0.75 for rural unskilled labor is applied.52 (g) The value of time is measured by a minimum monthly wage of KHR 612,000 in the garment sector. (h) Both the financial and economic opportunity costs of capital are assumed at 10 percent. 52ADB. 2017. Report and Recommendation of the President to the Board of Directors, Proposed Loan and Administration of Loan and Grant, Kingdom of Cambodia: Provincial Water Supply and Sanitation Project. Page 76 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) C. Mondul Kiri Water Supply a. Financial Analysis 4. Without-project situation. Saen Monourom town has a population of about 17,000, and its current water supply system has a production capacity of 2,000 m3 per day. The expansion of new connections to the 2-year old system is still ongoing: water produced in 2017 was about 750 m 3 per day, and the number of service connections was 862, with a served population of less than 30 percent. The waterworks made a net loss (after depreciation) on an accrual basis in 2016 and 2017 (see table 3.1). Performance improved in 2017 as more connections were made, the increasing volume of water supplied resulting in increased revenues and decreased operating unit costs. However, the system is constrained with limited distribution network. The current network is expected to support only up to 1,100 connections within the service area, requiring about 900 m3 per day of water. Water consumption was at 800 liters per connection per day in 2017 and is expected to stay the same.53 Table 3.1. Past Financial Performance - Mondul Kiri Water Supply KHR, millions 2016 2017 Revenues 429 585 Operating expense 398 409 Profit before depreciation 31 176 Depreciation 236 243 Profit after depreciation (205) (68) Source: Mondul Kiri waterworks. 5. With-project situation. The subproject will construct a distribution pipeline network of about 45 km to increase the utilization of the current production capacity. According to the engineer’s estimate, the subproject would be able to provide access to safe piped water to almost 3,000 additional people by 2021. The construction is expected to start and complete in 2019. An estimated 70 percent of new customers would be connected in 2020 and the rest in 2021. Thereafter, 4 percent annual connection growth in the waterworks’ service areas is assumed because of increased density, until the number of connections reaches 2,000. The number of non-household connections is assumed to increase in proportion to the growth in household connections. While water consumption for non-households is kept constant at 800 liters per connection per day, water consumption for households would decrease from 160 liters to 150 liters per capita per day starting in project year 3. Table 3.2 presents the parameters used in the financial analysis. Table 3.2. Key Parameters for Financial Analysis - Mondul Kiri Water Supply Item 2018 2023 2028 2033 2038 Average household size (persons) 5 5 5 5 5 2017 constant price of water 1,883 1,883 1,883 1,883 1,883 (KHR/m3) Without project Water sold (m3) 290,215 302,596 302,596 302,596 302,596 Number of connections 991 1,100 1,100 1,100 1,100 53 Data on the breakdown of water consumption between households and non-households were not available. Page 77 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Item 2018 2023 2028 2033 2038 With project Water sold (m3) 290,215 513,320 550,174 550,174 550,174 Number of connections 991 1,866 2,000 2,000 2,000 Increments due to project Water sold (m3) 0 210,724 247,578 247,578 247,578 Number of connections 0 766 900 900 900 Source: World Bank staff calculation. 6. Subprojects’ financing plan. The subproject is estimated to cost KHR 4,400 million (US$1.1 million), inclusive of contingencies. The Government will provide the project proceeds and government counterpart contribution to the implementing agencies as grants. 7. Projected financial performance of the with-project scenario. The projected with-project financial performance of Mondul Kiri waterworks for 2018 to 2038 is summarized in table 3.3. The financial projections indicate that the waterworks is estimated to have positive net income each year over the forecast period, mainly because of increased connections under the subproject. As a result, the waterworks will be able to fund all O&M expenses and major replacements and generate an increasing operating surplus. Table 3.3. Projected With-Project Financial Performance - Mondul Kiri Water Supply (KHR, millions) 2018 2019 2020 2021 2022 2023 2028 2033 2038 Revenues 554 596 928 902 895 926 973 973 973 Expenses O&M 426 454 698 638 611 628 643 643 643 Replacement set-aside 135 135 145 145 145 145 145 145 145 Net income −7 7 85 119 139 154 185 185 185 Net operating incomea 128 142 229 263 284 298 330 330 330 Source: World Bank staff calculation. Note: a. Includes replacement set-aside provisions. 8. With- and without-project comparison accounting for the investment costs. Although the investment costs do not have a cash impact on the waterworks, the NPV is calculated using the investment cost and the cashflow difference between the with- and without-project scenarios to assess whether the investment is financially reasonable considering the waterworks’ indicative cost of capital. The results of the NPV at the discount rate of 10 percent and sensitivity analysis around key project risks are summarized in table 3.4. Despite the revenues from new connections and decreased O&M unit costs because of economies of scale, the base case shows a negative NPV because the indicative cost of capital is higher than the additional revenues generated under the with-project scenario. The financial IRR is marginally negative. Table 3.4. With- versus Without-Project NPV and Sensitivity Analysis - Mondul Kiri Water Supply NPVa Scenario Change (%) IRR (%) SIb SV (%)c (KHR, millions) Base case (2,714) −2.2 Increase in capital costs +10 (3,114) −3.0 1.5 −68 Increase in O&M costs +10 (3,289) −5.8 2.1 −47 Page 78 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) NPVa Scenario Change (%) IRR (%) SIb SV (%)c (KHR, millions) Decrease in new connections −10 (2,810) −3.0 0.4 n.a. Decrease in tariff −10 (3,512) −7.9 2.9 34 Decrease in collection rate −10 (3,512) −7.9 2.9 34 Construction delay 2 years (2,550) −2.8 n.a. n.a. Procurement delay 2 years (2,208) −3.0 n.a. n.a. Source: World Bank staff calculation. Note: a. NPV = Net present value discounted at 10%. b. SI = Sensitivity indicator (ratio of % change in NPV to % change in a variable). c. SV = Switching value (% change in a variable to reduce the NPV to zero). 9. Implication for supervision to ensure financial sustainability. The financial projections of the subproject for 2018–2038 show that the subproject is financially sustainable, but the difference in the NPV of cashflows between the with- and without-project scenarios is negative at the 10 percent discount rate. The sensitivity analysis shows that to ensure financial sustainability of the project, the supervision team will need to closely keep track of, in order of importance, (a) maintaining the tariff in real terms and keeping the collection rate high, (b) controlling the O&M costs and realizing the costs reduction from economies of scale, and (c) preventing construction cost overrun. b. Economic Analysis 10. Economic benefits. The quantifiable benefits of the subproject are measured based on the following: (a) Direct benefits of the water supply service provision are equivalent to the avoided private costs, such as private investment and operational costs for wells and water purchased from vendors, less the tariff that the new customers would pay for the use of the same amount of water. The avoided costs are valued by the weighted average price households are paying for existing non-piped water sources (see table 3.5), assuming water consumption of 80 liters per capita per day. Costs associated with treatment, collection, and storage are not considered. Table 3.5. Cost of Non-Piped Water - Mondul Kiri Water Supply Water Source Proportion (%) Price (KHR/m3) Water tanker 44 24,000 Well 55 1,683 Bottled water 0 125,000 Weight average — 11,867 Source: Field visits, World Bank staff calculation. (b) Despite the difficulties of estimating water supply externalities, the following quantifiable indirect benefits (or costs) are considered, with key parameters used summarized in Table 3.6: • The health benefits arise from avoided costs because of reduced diarrheal illness and are measured in two independent ways. The first measure estimates the value of healthy life arising from the quality of life enhancement because of reduced diarrheal Page 79 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) disease incidence. It is calculated as the reduction in the rate of occurrence of disease in the target population that receives the new service in terms of disability-adjusted life years (DALYs) averted attributable to diarrhea. The value of averted DALYs are measured by the minimum wage, which is deemed to represent the minimum value of healthier life. The second measure estimates the avoided health care costs because of reduced diarrheal disease incidence. It is to be noted that, not all disease incidence can be averted because of improved water supply intervention, and the probability of reduction in the risk of diarrhea because of improvements in water supply is assumed to be 19 percent for both measures.54 • The benefits of time saved are calculated based on the opportunity cost of collecting water, measured by the minimum wage. A field interview noted that families sometimes have to wait 0.5–24 hours when they order water every 5–7 days, resulting in children’s school tardiness and absenteeism and less time, usually for adult women, for earning income and personal needs. For the calculation, it is estimated that 1 hour per household per week could be saved because of the subproject. • The subproject’s environmental benefits55 (or costs) arising from GHG emission are calculated using the shadow price of carbon (US$40 per tCO2-eq in 2020, rising to US$50 per tCO2-eq by 2030).56 The net emissions from the subproject are −11,523 tCO2- eq over the analysis period, mainly because of reducing home water boiling. Table 3.6. Key Parameters for Economic Analysis - Mondul Kiri Water Supply Item 2018 2023 2028 2033 2038 Population with connection — 3,560 4,185 4,185 4,185 Diarrheal infections averted in DALYs — 3.0 3.6 3.6 3.6 Health care cost savings from reduced — 887 887 887 887 diarrheal infections (KHR/person) Avoided GHG emissions (tCO2-eq) — 606 606 606 606 Source: World Bank staff calculation. (c) Consumer surplus stemming from the increased water consumption on account of piped water connection is not included to avoid double counting of benefits. 54 Fewtrell, Kaufmann, Kay, Enanoria, Haller, and Colford. 2005. Water, Sanitation, and Hygiene Interventions to Reduce Diarrhea in Less Developed Countries: A Systematic Review and Meta-analysis. 55 Other environmental benefits that are likely to occur from reduced use of groundwater and bottled water are not quantified due to lack of available data. 56 The World Bank’s 2017 methodology accounts for the fact that the type of emissions over the rest of the century is not known, so it uses two price corridors to account for two scenarios: one in which the world as a whole does much to mitigate against climate change (that is, the lower-bound price) and one in which it does little (that is, the higher-bound price). Given that the project results in net emission reduction, the base case uses the lower-bound shadow price of carbon to conservatively measure the economic benefits, but the results using the higher-bound shadow price, US$80 per tCO2-eq in 2020, rising to US$100 per tCO2-eq by 2030, are shown in Table 3.8. Page 80 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) 11. Economic costs. The economic price of the investment cost is estimated at KHR 4,246 million (US$1.06 million), the calculation of which is shown in table 3.7. O&M costs’ conversion factors are not considered because of the lack of reliable data. Table 3.7. Economic Investment Cost - Mondul Kiri Water Supply Item Financial Price Proportion Conversion Factor Economic Price (KHR, millions) (%) (KHR, millions) Traded 1,760 40 1.10 1,936 Non-traded Unskilled labor 1,320 30 0.75 990 Others 1,320 30 1.00 1,320 Total 4,400 100 — 4,246 Source: ADB (2017), World Bank staff calculation. 12. Results of economic analysis. The results of the economic and sensitivity analysis are summarized in table 3.8. The subproject is economically viable in the base case scenario and is robust against the project’s key downside risks. Its biggest economic benefits come from the direct benefits—that is, avoided private costs of procuring water—followed by the benefits from time saving; health benefits are deemed relatively small. Table 3.8. Economic and Sensitivity Analysis - Mondul Kiri Water Supply (KHR, millions) 2018 2023 2028 2033 2038 Direct benefits — 1,327 1,560 1,560 1,560 Indirect benefits: Reduced DALYs from less — 22 26 26 26 diarrheal infections Indirect benefits: Reduced health care costs from — 3 4 4 4 less diarrheal infections Indirect benefits: Time saved from reduced — 131 154 154 154 waiting time for water delivery Indirect benefits: Reduced GHG emission — 104 116 130 145 Economic investment costs — — — — — O&M costs and replacement set-aside — 233 247 247 247 Net economic benefits — 1,355 1,612 1,626 1,641 Change NPVa IRR SV Scenario SIb (%) (KHR, millions) (%) (%)c Base case — 5,190 24.7 — — Base case with higher-bound carbon — — — 6,044 26.9 price Increase in capital costs +10 4,804 22.7 0.7 134 Increase in O&M costs +10 4,614 22.9 1.1 90 Decrease in new connections −10 4,574 23.5 1.2 n.a. Decrease in direct benefits −10 4,312 22.5 1.7 −59 Page 81 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Change NPVa IRR SV Scenario SIb (%) (KHR, millions) (%) (%)c Decrease in indirect benefits −10 4,981 24.2 0.4 −249 Construction delay 2 years 3,988 21.5 n.a. n.a. Procurement delay 2 years 4,318 26.3 n.a. n.a. Source: World Bank staff calculation. Note: a. NPV = Net present value discounted at 10%. b. SI = Sensitivity indicator (ratio of % change in NPV to % change in a variable). c. SV = Switching value (% change in a variable to reduce the NPV to zero). 13. Implication for supervision to ensure economic viability. The sensitivity analysis shows that the subproject’s economic performance depends most on realization of timely construction and procurement, direct benefits, the number of new connections, and O&M and capital costs. The supervision team will monitor these closely to ensure economic viability of the subproject. D. Siem Reap Wastewater 14. The focus of the project investments in Siem Reap City is improvements to the sewerage systems that expand wastewater collection, conveyance, and treatment services to the population. These endeavors are traditionally financially unprofitable. However, large economic and social benefits are expected from the project investments. Financial profits and returns are clearly not the focus of the project. Nevertheless, the operational sustainability of the Siem Reap SWTPU as a whole is an important issue to ensure that it remains capable of operating and maintaining the infrastructure and provide adequate services in the longer term. a. Financial Analysis 15. Without-project situation. Siem Reap City has a population of about 190,000 (2012), and its current wastewater system has about 20 km of main sewer lines and designed treatment capacity of 8,000 m3 per day of wastewater that has an organic pollutant load of 300 mg/L Biological Oxygen Demand (BOD). Despite reporting small profits in 2016 and 2017 (see Table 3.9), these figures do not reflect replacement costs, and profits were achieved with government subsidies on electricity and staff. If these factors were considered, losses would have been more than KHR 2.3 billion (US$575,000) in both years. In fact, the system is financially struggling; since secondary and tertiary sewers are not in place to connect directly to most households and other premises in the city, the number of formal customers is small and collection rate is low at 74 percent. Some connected customers even refuse to receive wastewater bills, lowering the billing rate. Although the system is not fully functional currently because of a major main sewer failure, the without-project scenario assumes the successful completion of the ongoing rehabilitation of the main sewer financed by the ADB. Nevertheless, it is assumed that the number of connections would remain low because of the lack of secondary and tertiary sewers, increasing by 1 percent a year. The billing rate would continue to decrease by 2 percentage points per year for the first 10 years (following recent trend), and the collection rate would stay the same at 74 percent. Page 82 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Table 3.9. Past Financial Performance - Siem Reap Wastewater (KHR, millions) 2016 2017 Revenues 270 305 Operating expense (excluding subsidized items) 251 269 Profit before replacement costs 19 36 Source: Siem Reap DPWT. 16. With-project situation. The subproject will (a) construct secondary and tertiary sewers to increase the utilization of the wastewater system being rehabilitated and (b) rehabilitate and augment the existing sewerage system, including the wastewater treatment plant and the sewage pumping stations. It is estimated that the secondary and tertiary sewers would collect and convey wastewater from about 4,300 additional connections by 2023, 3,400 of which are residential. While the construction would start in 2019 and end in 2023, customer connections are assumed to materialize slowly, starting in 2022 and ending in 2028, with 55 percent of the new customers connected in 2022. Given that the willingness to pay for wastewater services is very low, official billing of connections would be even more gradual in the early stage of connections. Meanwhile, the collection rate would increase by 4 percent per year for five years as a result of an effective communications campaign. Table 3.10 lists the parameters used in the financial analysis. Table 3.10. Key Parameters for Financial Analysis - Siem Reap Wastewater Item 2018 2019 2020 2021 2022 2023 2028 2033 2038 Without project Number of connections 972 982 992 1,002 1,012 1,022 1,074 1,129 1,187 Number of billed connections 713 699 687 674 661 644 605 629 653 Collection rate (%) 74 74 74 74 74 74 74 74 74 With project Number of connections 972 982 992 1,002 4,566 5,383 7,490 8,543 8,716 Number of billed connections 713 699 761 820 2,042 3,874 7,490 8,543 8,716 Collection rate (%) 74 78 82 86 90 94 94 94 94 Increments due to project Number of connections — — — — 3,554 4,361 6,416 7,414 7,529 Of which residential — — — — 2,816 3,419 4,949 5,686 5,762 Number of billed connections — — 74 146 1,381 3,230 6,885 7,914 8,063 Source: World Bank staff calculation. 17. Subprojects’ financing plan. The subproject is estimated to cost KHR 80,000 million (US$20 million), inclusive of contingencies. The Government will provide the project proceeds and Government counterpart contribution to the implementing agencies as grants. 18. Projected financial performance of the with-project scenario. The projected with-project financial performance for 2018 to 2038 is summarized in Table 3.11. The financial projections indicate that the project would help the service provider reach a positive operating profit after 2023. In other words, on a day-to-day operational basis, the service provider is expected to operate and maintain the infrastructure under its responsibility and thus provide service on a sustainable basis without a need for recurring subsidies. Still, the projections show that the system would not be able to fund the major replacements, calling for tariff adjustments in the medium term. Page 83 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Table 3.11. Projected With-Project Financial Performance - Siem Reap Wastewater (KHR, millions) 2018 2019 2020 2021 2022 2023 2028 2033 2038 Revenues 298 306 338 362 973 1,293 2,283 2,579 2,618 Expenses O&M less subsidized items 103 103 103 103 409 443 537 638 726 Staff and electricity subsidy 450 450 450 450 786 850 944 1,025 1,038 Operating profit excluding subsidy (255) (247) (215) (191) (222) (0) 802 916 854 Replacement set-aside 2,244 2,244 2,244 2,244 3,044 3,044 3,044 3,044 3,044 Profit (loss) (2,499) (2,491) (2,459) (2,434) (3,266) (3,044) (2,242) (2,128) (2,190) Source: World Bank staff calculation. 19. With- and without-project comparison accounting for the investment cost. Although the investment costs do not have cash impact on the system, NPV is calculated using the investment cost and the cashflow difference between the with- and without-project scenarios to assess whether the investment is financially reasonable considering the system’s indicative cost of capital. The results of the NPV at the discount rate of 10 percent and sensitivity analysis around key project risks are summarized in table 3.12. Despite the decreased O&M unit costs because of economies of scale, the base case shows negative NPV because the indicative cost of capital is higher than the additional revenues, generated in the with-project scenario, from new connections and the increased billing and collection rates. Table 3.12. With- versus Without-NPV and Sensitivity Analysis - Siem Reap Wastewater Scenario Change (%) NPVa IRR (%) SIb SV (%)c (KHR, millions) Base case — (54,764) n.a. — — Increase in capital costs +10 (60,829) n.a. 1.11 −90 Increase in O&M costs +10 (55,837) n.a. 0.20 n.a. Decrease in connections target −10 (55,955) n.a. 0.22 n.a. Decrease in tariff −10 (56,044) n.a. 0.23 428 Decrease in collection rate −10 (56,044) n.a. 0.23 n.a. Construction delay 2 years (50,464) n.a. n.a. n.a. Procurement delay 2 years (44,951) n.a. n.a. n.a. Source: World Bank staff calculation. Note: a. NPV = Net present value discounted at 10%. b. SI = Sensitivity indicator (ratio of % change in NPV to % change in a variable). c. SV = Switching value (% change in a variable to reduce the NPV to zero). 20. Implication for supervision to ensure financial sustainability. Although the comparison between the with- and without-project scenarios shows a negative NPV, the financial projections of the subproject for 2018–2038 under the with-project scenario show that the subproject would help improve the financially sustainability of the system significantly, where it is reasonable to expect that the ongoing recurring subsidy from the Government could be discontinued over time under the current assumptions. The sensitivity analysis shows that the capital costs overrun would be financially most detrimental to the project, followed by decrease in tariff and collection rate, decrease in new connections, and increase in O&M costs. However, the project itself would not be sufficient to ensure full financial sustainability of the system since cost recovery of the system beyond O&M costs is still an issue (for example, longer-term Page 84 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) replacement and renewal considerations or potential internal cash generation for capital expansion). A tariff reform may be warranted. For example, tariff increases by 15 percent per year in real terms between 2024 and 2028, which translates into an increase of monthly residential tariff from KHR 135,000 to KHR 235,000 at 2017 prices during the same period, could cover replacement costs starting from 2028. There seems to be potential for cross-subsidization as well, given the presence of the large tourism industry. b. Economic Analysis 21. Economic benefits. The quantifiable benefits of the subproject are measured based on the following: (a) Direct benefits of the wastewater service provision are equivalent to the avoided private costs, such as private investment and operational costs for septic tanks. It is assumed that the tariff represents the value of direct benefits of the basic service provision. (b) Despite the difficulties of estimating sanitation externalities, the following quantifiable indirect benefits (or costs) are considered, with key parameters used summarized in Table 3.13: • The health benefits arise from avoided costs because of reduced diarrheal illness. It is important to note that avoided costs are borne not only by specific customers who are connected but by a larger society. Improperly collected or properly collected but untreated wastewater releases pathogens to the environment where humans may come into contact with it, for example through wells and rivers. The situation gets more hazardous during the rainy season, when the combined sewer floods and many people are exposed to floodwater. For these reasons, it is assumed that the subproject would reduce the costs related to diarrheal illness borne by half of Siem Reap City’s total population. The avoided costs are measured in two independent ways, the same as in Mondul Kiri. The probability of reduction in the risk of diarrhea because of improvements in sanitation is assumed to be 36 percent for both measures.57 • Tourism is the backbone of Siem Reap’s economy, and it is assumed that visitors to Siem Reap are sensitive to the city’s sanitation conditions.58 The potential value of increased tourism because of better sanitation is calculated by using an increased hotel occupancy rate and associated tourism receipts, 1 percent of which is assumed to be attributable to the subproject. A lower incidence of diarrhea among tourists would be an additional benefit but is not included in the analysis. • The subproject’s environmental benefits59 (or costs) arising from GHG emission are calculated using the shadow price of carbon (US$40 per tCO2-eq in 2020, rising to 57 Fewtrell et al. 2005. 58 World Bank. 2018. Economic Impacts of Sanitation in Cambodia: A Five-Country Study Conducted in Cambodia, Indonesia, Lao PDR, the Philippines and Vietnam under the Economics of Sanitation Initiative (ESI) . 59 Other environmental benefits that are likely to occur from preserving ground water and other natural resources are not quantified because of the lack of available data. Page 85 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) US$50 per tCO2-eq by 2030).60 The net emissions from the subproject are 822 tCO2-eq over the analysis period, mainly because of the energy costs to run the system. Table 3.13. Key Parameters for Economic Analysis - Siem Reap Wastewater Item 2018 2023 2028 2033 2038 Population with avoided costs — 117,680 129,929 143,452 158,382 Diarrheal infections averted in DALY — 271 299 330 365 Health care cost savings from reduced diarrheal infections (KHR/person) 1,681 1,681 1,681 1,681 1,681 Avoided GHG emissions (tCO2-eq) — (43) (43) (43) (43) Source: World Bank staff calculation. 22. Economic costs. The economic price of the investment cost is estimated at KHR 58,560 million (US$14.64 million), the calculation of which is shown in table 3.14. O&M costs’ conversion factors are not considered because of the lack of reliable data. Table 3.14. Economic Investment Cost - Siem Reap Wastewater Item Financial Price Proportion (%) Conversion Factor Economic Price (KHR, millions) (KHR, millions) Traded 32,000 40 1.10 35,200 Non-traded Unskilled labor 40,000 50 0.75 30,000 Others 8,000 10 1.00 8,000 Total 80,000 100 — 73,200 Source: ADB (2017), World Bank staff calculation. 23. Results of economic analysis. The results of the economic and sensitivity analysis are summarized in table 3.15. The subproject is economically viable in the base case scenario and is robust against the project’s key downside risks. Its biggest economic benefits come from increased tourism receipts, followed by the health benefits from reduced DALY. 60 The results using the higher-bound shadow price, US$80 per tCO2-eq in 2020, rising to US$100 per tCO2-eq by 2030, are shown in table 3.15. Page 86 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) Table 3.15. Economic and Sensitivity Analysis - Siem Reap Wastewater (KHR, millions) 2018 2023 2028 2033 2038 Direct benefits — 1,039 2,115 2,425 2,464 Indirect benefits: Reduced DALYs — 1,990 2,198 2,426 2,679 Indirect benefits: Reduced health care costs — 198 218 241 266 Indirect benefits: Increased tourism — 10,442 10,442 10,442 10,442 Indirect benefits (costs): Reduced GHG emission — (7) (8) (9) (10) Economic investment costs — 14,640 — — — O&M costs — 715 833 933 942 Net economic benefits — (1,693) 14,131 14,592 14,897 NPVa Scenario Change (%) IRR (%) SIb SV (%)c (KHR, millions) Base case — 28,083 16.9 — — Base case with higher-bound carbon — — — price 28,022 17.0 Increase in capital costs +10 22,533 15.2 2.0 51 Increase in O&M costs +10 27,010 16.7 0.4 262 Decrease in connections target −10 26,810 16.7 0.5 n.a. Decrease in direct benefits −10 26,980 16.8 0.4 n.a. Decrease in indirect benefits −10 20,339 15.2 2.8 −36 Construction delay 2 years 15,378 13.9 n.a. n.a. Procurement delay 2 years 20,422 16.7 n.a. n.a. Source: World Bank staff calculation. Note: a. NPV = Net present value discounted at 10%. b. SI = Sensitivity indicator (ratio of % change in NPV to % change in a variable). c. SV = Switching value (% change in a variable to reduce the NPV to zero). 24. Implication for supervision to ensure economic viability. The sensitivity analysis shows that the subproject’s economic performance depends most on preventing construction delay, attaining indirect benefits, and avoiding a capital costs overrun and procurement delay. The supervision team will monitor these closely to ensure economic viability of the subproject. Page 87 of 88 The World Bank Water Supply and Sanitation Improvement Project (P163876) ANNEX 4: MAP OF PROJECT LOCATION COUNTRY: Cambodia Water Supply and Sanitation Improvement Project Note: The map indicates the locations that have already been identified. Other subproject locations will be identified during project implementation. Page 88 of 88