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Special Evaluation Study on Water Policy and Related Operations

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Special Evaluation Study on Water Policy and Related Operations Evaluation Study Reference Number: SES:OTH 2010-47 Special Evaluation Study October 2010 Water Policy and Related Operations Independent Evaluation Department ABBREVIATIONS ADB – Asian Development Bank ADTA – advisory technical assistance CCF – Climate Change Fund CFWS – Cooperation Fund for the Water Sector CLTS – Community-Led Total Sanitation CoP – Community of Practice CWRD – Central West Asia Department DMC – developing member country EA – executing agency EARD – East Asia Department EIRR – economic internal rate of return FIRR – financial internal rate of return IA – implementing agency IADB – Inter-American Development Bank IED – Independent Evaluation Department ISF – irrigation service fee IWRM – integrated water resources management LTSF – long-term strategic framework m3 – cubic meter MDB – multilateral development bank MDG – Millennium Development Goal MRC – Mekong River Commission NGWT – National Guidelines on Water Tariffs NRW – non-revenue water NSO – nonsovereign operations PARD – Pacific Department PCR – project completion report PPP – public-private partnership PPR – project performance report PPTA – project preparatory technical assistance PPWSA – Phnom Penh Water Supply Authority PRC – People’s Republic of China PSI – private sector investment PSP – private sector participation RBO – river basin organization RETA – regional technical assistance RRP – report and recommendation of the President RSDD – Regional and Sustainable Development Department SARD – South Asia Department SLR – sea level rise SERD – Southeast Asia Department SES – special evaluation study TA – technical assistance VND – Viet Nam Dong WBNR – water-based natural resources WFP – Water Financing Program WFPF – Water Financing Partnership Facility WUA – water user association WSS – water supply and sanitation NOTES (i) For an explanation of the ratings used in ADB evaluation reports, see ADB. 2006. Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila. (ii) In this report, “$” refers to US dollars. Key Words adb, asian development bank, community of practice, river basin organization, water-based natural resources, water communities of practice, water supply and sanitation, regional cooperation, private sector participation, public-private partnership, cost recovery, climate change, non-revenue water, water tariff Director General H.S. Rao, Independent Evaluation Department (IED) Director R.B. Adhikari, Independent Evaluation Division 1, IED Team leader S. Penjor, Principal Evaluation Specialist, IED Team members C. F. Infantado, Portfolio Evaluation Officer, IED B. Q. Cafirma, Evaluation Assistant, IED Independent Evaluation Department, SS-108 In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, the Independent Evaluation Department does not intend to make any judgments as to the legal or other status of any territory or area. CONTENTS Page EXECUTIVE SUMMARY i I. INTRODUCTION 1 A. Background 1 B. Methodology and Data 1 II. THE WATER POLICY 2 A. The Water Policy Context―Current Scenario and Challenges 2 B. ADB's 2001 Water Policy—Relevance, Consistency, and Adequacy 3 C. Continued Relevance and Consistency of the Water Policy 5 D. Comparative Review of Water Policies 7 E. Relevance at the Project Level 8 III. ASSESSMENT OF THE IMPLEMENTATION OF THE WATER POLICY— RESPONSIVENESS 8 A. Water Sector Operations 8 B. Integration of the Water Policy in Water Sector Projects 14 C. Allocation of Funding and Staff Resources to Implement the Policy 16 IV. EFFECTIVENESS AND EFFICIENCY OF WATER SECTOR OPERATIONS— RESULTS 17 A. Success Rates of Completed Projects 17 B. Effectiveness 19 C. Efficiency of Project Implementation and Output 22 D. Implementation Problems and Actions Taken 24 E. Sustainability 27 V. KEY LESSONS AND ISSUES IN THE WATER POLICY AND RELATED OPERATIONS 31 A. Key Lessons Identified 31 B. Key Issues in the Water Sector 35 VI. CONCLUSIONS AND RECOMMENDATIONS 39 A. Conclusions 39 B. Recommendations 42 APPENDIXES 46 1. Evaluation Approach 46 2. The Water Policy Context 51 3. ADB’s Water Policy 56 4. Comparative Review of Water Policies 60 5. Water Policy Implementation 63 6. Private Sector Investment in Water 76 7. Evaluation of Water Partnerships and Related Funds 85 8. Water Sector Project Results 91 9. Risk and Project Sustainability 111 10. Critical and Cross-Cutting Issues 116 SUPPLEMENTARY APPENDIXES (available upon request) A. Thematic Papers (Regional Cooperation, Prospects of Achieving Water and Sanitation Sector MDGs, Climate Change, and Tariff Regulation) B. Country Studies (India, Uzbekistan, and Viet Nam) C. List of Projects Included in SES on Water Sector Policy and Analysis The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. Michael Henri-Paul Fortin, Jonathan Richard Cook, Daisy de Jesus-Garcia, and Rashel Yazmin Pardo-Dimaano were the consultants. Tomoo Ueda peer reviewed the earlier draft of the report. To the knowledge of the management of IED, there were no conflicts of interest among the persons preparing, reviewing, or approving this report. EXECUTIVE SUMMARY When the water policy of the Asian Development Bank (ADB) was approved in 2001, water was widely viewed as one of the greatest global challenges. The challenge was accentuated by, among others, population growth, urbanization, and changes in climatic patterns. Significant improvements were needed in water management policies and practices to (i) sustain lives and food production, (ii) support larger urban populations, and (iii) improve environmental sustainability in the Asia Pacific region and in the world. The water policy covers seven main elements: (i) promoting a national focus on water sector reform, (ii) fostering the integrated management of water resources, (iii) improving and expanding the delivery of water services, (iv) fostering water conservation and increasing system efficiencies, (v) promoting regional cooperation, (vi) facilitating the exchange of water sector information, and (vii) improving governance. Under the seven elements, 40 objectives or approaches are defined. A preliminary internal review of the policy was conducted in 2003, followed by a more detailed review in 2005 by an external panel of experts. These reviews recommended doubling ADB lending to the water sector to $2 billion annually, catalyzing reforms, and supporting capacity development. This special evaluation study (SES) is the first evaluation of the ADB water policy and operations carried out by the Independent Evaluation Department (IED). The objective of the SES is to (i) assess the implementation of ADB’s 2001 water policy and the performance of related operations, (ii) identify lessons and issues, and (iii) make recommendations to inform future decision making on water sector operations in ADB’s developing member countries (DMCs). Key evaluation questions centered on relevance, consistency, and adequacy of the water policy; ADB’s responsiveness or how it implemented the policy; and results so far, including effectiveness in achieving outputs and outcomes, process and project efficiency in resource use, and likelihood of the sustainability of net benefits. The SES is based on a careful review and analysis of relevant ADB policy and operations documents, water sector-related portfolio data and evaluation reports, and interviews in ADB headquarters. Completed and ongoing water sector projects were also reviewed to determine their effectiveness and efficiency in achieving outputs and outcomes. In addition, three project-level case studies from Cambodia, Pakistan, and People’s Republic of China (PRC); and three country-level case studies in India, Uzbekistan, and Viet Nam were carried out to identify good practices and implementation issues. The SES team made a presentation to the Water Community of Practice (CoP) on the preliminary findings of the study. Key Findings Relevance. The water policy is rated relevant as it is consistent with ADB's corporate strategy and DMC national priorities, and supports international consensus on integrated water resources management (IWRM) and Millennium Development Goals (MDGs) related to water and sanitation. The policy also seeks to promote environmental protection and sustainable use of water resources, which are relevant to climate change. The review of completed as well as ongoing projects shows that the water program scores well on relevance. A comparative review of water policies shows that ADB’s water policy compares well with that of other multilateral development banks. In relation to the World Bank, the main areas of difference in approach are as follows: (i) ADB has increased focus on negotiated and participatory approaches; (ii) ADB promotes a gradual phase-out of subsidies while the World Bank support targeted and means-tested subsidies; (iii) ADB lacks an explicit policy for small water supply providers and sanitation in contrast to the World Bank; and (iv) for large water ii projects, ADB has a cautionary approach. Further, ADB’s water policy recognizes the importance of regional cooperation in water resource management. ADB’s current Strategy 2020 (superseding the Long-Term Strategic Framework 2001- 2015) has established three strategic pillars to guide its operations up to 2020: (i) inclusive economic growth, (ii) environmentally sustainable growth,
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