Report and Recommendation of the President to the Board of Directors

Project Number: 42486-018 September 2020

Proposed Loan for Additional Financing : Urban Services Improvement Project

Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB’s Access to Information Policy.

CURRENCY EQUIVALENTS (as of 14 August 2020)

Currency unit – Indian rupee/s (₹) ₹1.00 = $0.013 $1.00 = ₹74.86

ABBREVIATIONS

ADB – Asian Development Bank BCC – behavior change communication COVID-19 – coronavirus disease DBO – design–build–operate GOMP – Government of Madhya Pradesh GESI – gender equality and social inclusion GRC – grievance redress committee IEE – initial environmental examination MPUDC – Madhya Pradesh Urban Development Company Limited NRW – nonrevenue water O&M – operation and maintenance PAM – project administration manual PMU – project management unit SDG – Sustainable Development Goal UDHD – Urban Development and Housing Department ULB – urban local body

NOTES

(i) The fiscal year (FY) of the Government of India and its agencies ends on 31 March. “FY” before a calendar year denotes the year in which the fiscal year ends, e.g., FY2020 ends on 31 March 2020. (ii) In this report, “$” refers to United States dollars.

Vice-President Shixin Chen, Operations 1 Director General Kenichi Yokoyama, South Asia Department (SARD) Director Norio Saito, Urban Development and Water Division (SAUW), SARD

Team leaders Laxmi Sharma, Urban Development Specialist, SAUW, SARD Vivek Vishal, Senior Project Officer, India Resident Mission, SARD Team members Mikael Andersson, Financial Management Specialist, Portfolio, Results and Quality Control Unit, Office of the Director General, SARD Saswati Belliappa, Safeguards Specialist, SAUW, SARD Dharmesh Mahendra Dawda, Procurement Specialist, Procurement, Portfolio and Financial Management Department Donna Marie Melo, Operations Assistant, SAUW, SARD Douglas Alan Perkins, Principal Counsel, Office of the General Counsel Santosh Pokharel, Urban Economist, SAUW, SARD Krizelda Marie Songco, Project Analyst, SAUW, SARD Alexandra Vogl, Senior Planning and Policy Specialist, Strategy, Policy, and Partnerships Department Peer reviewer Kiyoshi Nakamitsu, Principal Urban Development Specialist, Urban Development and Water Division, Central and West Asia Department

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page PROJECT AT A GLANCE

MAP I. THE PROPOSAL 1 II. THE PROJECT 1 A. Rationale 1 B. Impacts and Outcome 4 C. Outputs 4 D. Investment and Financing Plans 5 E. Implementation Arrangements 7 III. DUE DILIGENCE 7 A. Technical 7 B. Economic and Financial 8 C. Sustainability 9 D. Governance 9 E. Poverty and Social 10 F. Safeguards 10 G. Risks and Mitigating Measures 11 IV. ASSURANCES AND CONDITIONS 12 V. RECOMMENDATION 12

APPENDIXES 1. Revised Design and Monitoring Framework 13 2. List of Linked Documents 18

Project Classification Information Status: Complete

PROJECT AT A GLANCE

1. Basic Data Project Number: 42486-018 Project Name Madhya Pradesh Urban Services Department/Division SARD/SAUW Improvement Project - Additional Financing Country India Executing Agency Urban Development and Borrower Government of India Housing Department

Country Economic https://www.adb.org/Documents/LinkedDocs/ Indicators ?id=42486-018-CEI Portfolio at a Glance https://www.adb.org/Documents/LinkedDocs/ ?id=42486-018-PortAtaGlance

2. Sector Subsector(s) ADB Financing ($ million) Water and other urban Urban policy, institutional and capacity development 10.00 infrastructure and services Urban sanitation 60.00 Urban water supply 200.00

Total 270.00 3. Operational Priorities Climate Change Information Addressing remaining poverty and reducing inequalities GHG reductions (tons per annum) 2,892 Accelerating progress in gender equality Climate Change impact on the High Tackling climate change, building climate and disaster resilience, and Project enhancing environmental sustainability Making cities more livable ADB Financing Strengthening governance and institutional capacity Adaptation ($ million) 23.60 Mitigation ($ million) 10.10

Cofinancing Adaptation ($ million) 0.00 Mitigation ($ million) 0.00 Sustainable Development Goals Gender Equity and Mainstreaming SDG 5.5 Effective gender mainstreaming (EGM) SDG 6.1, 6.2 SDG 11.a Poverty Targeting SDG 13.a General Intervention on Poverty

4. Risk Categorization: Complex 5. Safeguard Categorization Environment: B Involuntary Resettlement: B Indigenous Peoples: B

6. Financing Modality and Sources Amount ($ million) ADB 270.00

Sovereign Project (Regular Loan): Ordinary capital resources 270.00 Cofinancing 0.00 None 0.00

Counterpart 115.70

Government 115.70 Total 385.70

Currency of ADB Financing: US Dollar

Source: Asian Development Bank This document must only be generated in eOps. 03062020080043343819 Generated Date: 28-Aug-2020 19:27:53 PM INDIA MADHYA PRADESH Madhya Pradesh Urban Services Improvement Project URBAN SERVICES IMPROVEMENT - Water Supply ( towns), Sewerage ( towns ) Madhya Pradesh Urban Services Improvement Project (additional financing) INVESTMENT PROJECT (additional financing) - Water Supply ( towns), Sewerage ( towns ) State Capital District Headquarters North–South Corridor Lahar Alampur East–West Corridor Vijaypur National Highway CHAMBAL Pichhore Project Implementation Unit Boundary UTTAR Bairad PRADESH District Boundary GWALIOR State or Union Territory Boundary Boundaries are not necessarily authoritative. Jeron RAJASTHAN Pichhore Kalsa Gadimalhara Lidhora khas Kari Maharajpur Rajnagar (C) (C) Kothi Sarwaniya Maharaj CHHATARPUR Panna Nayagaon Shadora Athana Guna Ashok Nagar Kukdeshwar Kotar Rewa Neemach Raghogarh REWA Aron (C) Mandsaur Rajgarh Hatta New Ramnagar Khand Nagri Vijay Raghavgarh Susner Sagar Shahpur Patera Pachore Agar Katni Barhi Boda SAGAR Chandia Kymore Nagda Kurawar Vidisha Makdon Sanchi (C) M A D H Y A Majholi Umaria Ratlam Shajapur CHHATTISGARH UJJAIN P R A D E S H Tendukheda Sihora Bhopal Katangi Polaykalan Pankhedi Sehore Shahdol Ujjain Raisen Panagar Patan Goutampura Jawar Jabalpur Pasan GUJARAT Dewas Anuppur Kothari Saikheda (C) Narsinghpur Depalpur Bhedaghat Barela Niwas Dindori Jaithari Hatpiplya BHOPAL Salichauka Bankhedi Chichali Bagli Khategaon Hoshangabad JABALPUR SHAHDOL Sohagpur Mandla INDORE Karahi Kantaphod Loharda Panlya Khurd Nemawar Dhamnod (C) Bamhanibanjar Badwaha Harda Sarni CHHINDWARA Amla Seoni Badwani Chhindwara Baihar Rajpur Betul N Betul-Bazar Malajkhand Chand Balaghat KHARGAON HOSHANGABAD 0 50 100

Burhanpur Kilometers (km)

Shahpur This map was produced by the cartography unit of the Asian Development Bank. First Proof: 23 April 2020 MAHARASHTRA The boundaries, colors, denominations, and any other information shown on Cleared for BD circulation: 02 July 2020 this map do not imply, on the part of the Asian Development Bank, any judgment onP the legalR statusO of anyO territoryF, or any endorsement ON or acceptanceLY of such boundaries, colors, denominations, or information.

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to India for the additional financing of the Madhya Pradesh Urban Services Improvement Project.

2. The current project1 will improve urban service delivery in Madhya Pradesh. The additional financing (the project) will scale up the scope of the current project, which is performing well, by supporting (i) an additional 64 urban local bodies (ULBs) in Madhya Pradesh to expand coverage of improved water supply services; (ii) integrated storm water and sewage management in six additional ULBs; (iii) pilot of integrated urban development approach in two ULBs; and (iv) institutional strengthening and capacity building of Urban Development and Housing Department (UDHD), Madhya Pradesh Urban Development Company Limited (MPUDC), and project ULBs for ensuring sustainable urban services.

II. THE PROJECT

A. Rationale

3. Sector and institutional context. With a total population of 72.6 million, Madhya Pradesh is the fifth most populated state and the eighth most urbanized state in India. The total urban population of 20.1 million (28% of the total population) resides in 378 ULBs in Madhya Pradesh.2 Urbanization is expected to increase to 35% by 2026, which would exacerbate the already deficient urban infrastructure and poor basic services. The Government of Madhya Pradesh (GOMP) sought the support of the Asian Development Bank (ADB) to improve water supply services in 128 ULBs in Madhya Pradesh which were not supported by any other program and had limited financial resources and technical capability (footnote 1). The current project has taken a sector lending modality approach to fund 64 out of 128 ULBs because of the large number of subprojects and to ensure focus on sector policies and capacity of institutions to manage the plans.3 A second phase of support is proposed as additional financing, building on the learnings and the satisfactory progress made under the current project, to improve urban basic services to the remaining half of the initially proposed ULBs. This will benefit an additional 1.3 million people.4

4. Poverty remains a major issue in Madhya Pradesh, being a low-income state with a high urban poverty rate of 21.0%.5 Urban development challenges are more evident in small and medium-sized ULBs because of their limited technical, financial, and institutional capacities. As a result, water supply service is characterized by low service coverage with intermittent operations, weak water pressure, and risk of wastewater infiltration, leading to inefficiencies and potential health risks.6 While all ULBs in Madhya Pradesh, including small and medium-sized ULBs, have been declared open-defecation free,7 storm water drains are commonly used as sanitary sewers and discharge untreated wastewater into local environments, compromising the livability of the towns and creating health and safety hazards.

1 ADB. 2017. Report and Recommendation of the President to the Board of Directors: Proposed Loan and Technical Assistance Grant to India for the Madhya Pradesh Urban Services Improvement Project. Manila. 2 GOMP. 2013. Madhya Pradesh Vision 2018: An Agenda for Development, Change, and Good Governance. Bhopal. 3 GOMP. 2015. AMRUT: Madhya Pradesh State Annual Action Plan for FY2015–2016 and Perspective Plan 2015– 2020. Bhopal. 4 The additional financing will continue to follow the sector loan modality as (i) it has a large number of subprojects, (ii) the government has sector development strategies and policies in place and has the requisite institutional capacity to implement the project, and (iii) the policies applicable to the sector are appropriate as they address current sector needs. 5 Government of India, Ministry of Housing and Urban Affairs. 2019. Handbook of Urban Statistics 2019. Delhi. 6 MPUDC. 2017–2019. Detailed project reports of 64 water supply and 8 sewerage subprojects. Bhopal. 7 Government of India, Ministry of Housing and Urban Affairs. 2019. Annual Report 2018–2019. Delhi.

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5. Government’s approach. GOMP remains committed to providing sustainable, inclusive, and quality urban services. Through its Vision to Delivery Roadmap 2020–2025, GOMP has set 2025 as the target year for achieving universal access to piped water supply services in all ULBs.8 In line with the 74th constitutional amendment, GOMP has devolved all responsibilities concerning water supply and sanitation to ULBs and also instituted a legislative amendment empowering ULBs to set tariffs and make periodic adjustments. Each ULB has a water and sanitation section. On behalf of GOMP, the UDHD leads the implementation of sector reforms to build ULBs’ capacity to meet the priority needs of urban services including water supply and sanitation. The UDHD has been supporting all ULBs in improving property tax collections by introducing a geographical information system-based property database, and is progressively implementing an e-municipality software suite which includes customer management, billing and revenue collection management, and an electronic building plan approval system. The MPUDC, a 100% GOMP-owned agency, was established in 2015 with a mandate to support ULBs to deliver urban infrastructure facilities.9 Since its establishment, the MPUDC has developed its capacity through implementing externally funded urban projects in investment planning, coordination, and implementation. The World Bank and German Development Cooperation through KfW are currently supporting improvements to water and wastewater services and infrastructure in Madhya Pradesh.10

6. Coronavirus disease. The project remains highly relevant in a coronavirus disease (COVID-19) context as it supports the expansion of improved water supply services, which is essential for achieving safe sanitation and hygiene. Implementation of a behavior change communication (BCC) and community participation plan with the public awareness component will be prioritized for immediate improvement of hygiene conditions in project ULBs. As a result of the COVID-19 pandemic, GOMP is trying to balance the need for the lockdown and a gradual restart of the economy. This is particularly important in small ULBs with low COVID-19 pandemic impact and where people have been in hardship because of poor availability of water over a long period. With the pandemic having led to loss of income for many, employment opportunities for both skilled and nonskilled workers during the construction phase will be significant for stimulating the state economy and helping to minimize the number of poor and vulnerable people who fall into extreme poverty.

7. Current project. ADB approved a loan of $275.0 million for the current project from its regular ordinary capital resources on 18 May 2017. The closing date of the current project is 31 December 2022. The current project is supported by attached technical assistance of $1.0 million.11 As of 31 July 2020, cumulative contract awards were $250.7 million (91.2% of the net loan amount), and disbursements were $83.2 million (30.3% of the net loan amount). The current project is on track and has performed well consistently since the first quarter of 2019. Under the current project, water supply works are being implemented in 64 ULBs and sewerage works are being implemented in four ULBs, benefiting 312,425 households (102% of the 306,000 target households). The main sector reforms being implemented under the current project include (i) universal coverage with 100% metering, (ii) full operation and maintenance (O&M) cost recovery, (iii) implementation of a volumetric tariff coupled with GOMP-led urban property tax reforms and e-governance, and (iv) establishment of a customer service center in each project

8 GOMP. 2019. Vision to Delivery Roadmap, 2020–2025 and Annual Budget, 2020–2021. Bhopal. 9 The MPUDC was established in 2015 under the Companies Act, 2013 and is governed by a supervisory board composed of nine GOMP representatives, three independent directors, and commissioner of Urban Administration and Development Department of GOMP. 10 Development Coordination (accessible from the list of linked documents in Appendix 2). 11 ADB. 2017. Technical Assistance to India for Capacity Development of Institutions in the Urban Sector of Madhya Pradesh. Manila.

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ULB. Compliance with safeguard requirements and management of risks are satisfactory. The MPUDC has built good capacity in preparing proficient conceptual designs and handling design– build–operate (DBO) contracts through implementation of the current project. Works that were halted because of the COVID-19 pandemic for about 1.5 months have resumed in 46 ULBs following a protocol issued by the GOMP and in line with ADB’s approach on the updated environmental monitoring plan, including a site-specific health and safety plan for COVID-19.

8. Additional financing. The project is the next step towards scaling up the coverage of improved basic urban service delivery in Madhya Pradesh by building on the positive momentum of the current project. The ongoing associated technical assistance (footnote 11) will continue building the capacity of the UDHD and MPUDC.

9. Eligibility criteria. ADB’s due diligence confirmed that the project meets additional financing eligibility criteria and standards.12 The overall project (i) remains technically feasible; is economically viable and financially sound; (ii) is a high priority of the government; 13 and (iii) is consistent with the current project’s development objectives, the government’s priorities set in the Madhya Pradesh Vision to Delivery Roadmap 2020–2025, and ADB’s country partnership strategy for India, 2018–2022.14 The additional financing modality is suitable because of (i) strong links with the current project’s design and scope, which enables efficient implementation under the same implementation arrangements; (ii) the high degree of project readiness;15 and (iii) the opportunity to scale up the benefits of the current project and introduce innovative features such as (a) using integrated urban development approaches, (b) using information-technology-based project management systems in the MPUDC, and (c) retrofitting citywide inclusive sanitation in six ULBs. Project preparatory activities, including technical studies, bidding documents, and environmental and social assessments, are being carried out under the current project.

10. Lessons. Key lessons from current and completed ADB urban sector projects incorporated in the project design include the following: (i) an efficient project management system, including monitoring and evaluation during implementation, enables the implementing agency and project management unit (PMU) to track construction progress of multiple scattered subprojects and development outcomes; (ii) adequate human resources and logistics support are necessary for effective implementation of gender equality and social inclusion (GESI) activities; (iii) involvement of municipal staff in project design and implementation creates ownership and commitments; (iv) using 10-year DBO contracts for O&M and introducing metered house connections for water supply with volumetric tariff coupled with urban property tax reforms are significant steps in tackling the issue of sustainability; (v) a BCC outreach program is essential to promote the new service level, house connections with meters, equity, fairness, and cost recovery, and to bolster customer trust; and (vi) institutional strengthening is essential to support sustainable service delivery.

11. ADB’s value addition. ADB’s dialogue with the UDHD, MPUDC, and ULBs will bring efficiency gains by continuing innovative approaches and good practices (universal coverage, tariff setting, cost recovery, reducing nonrevenue water [NRW], and 100% household metering) of the current project. The project promotes inclusiveness by supporting Madhya Pradesh, one of

12 ADB. 2018. Additional Financing. Operations Manual. OM H5/OP. Manila (para. 4). 13 The Government of India has prioritized accelerating poverty reduction by targeting its lower-income states; Madhya Pradesh is one such state. 14 ADB. 2017. Country Partnership Strategy: India, 2018–2022—Accelerating Inclusive Economic Transformation. Manila. 15 Out of 39 DBO packages, notices to award have been issued for 13 packages ($98.5 million), price bids are being evaluated for seven packages ($47.4 million), invitations for bid have been published for seven packages ($44.0 million), and procurement of 12 packages remains to be initiated.

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India’s low-income states, and its remote small ULBs. ADB has nurtured a knowledge partnership with the Bill and Melinda Gates Foundation to strengthen the planning, design, implementation, and O&M of wastewater management subprojects. This will enable the project to mainstream a citywide inclusive sanitation approach into its integrated urban action planning and retrofit wastewater management subprojects to include non-networked sanitation solutions to make the investment pro-poor. The project will establish an information-technology-based project management and monitoring system to enable the MPUDC to supervise and control construction supervision of scattered subprojects, track achievement of development objectives, and monitor sector performance. The introduction of an integrated urban development approach16 to improve urban service delivery and infrastructure of two ULBs will provide significant demonstration effects in improving urban livability for replication and scale-up in other ULBs.

12. Strategic fit. The project is aligned with GOMP’s vision to improve urban infrastructure services with universal coverage of piped water supply in all ULBs by 2025, as well as its pledge to achieve Sustainable Development Goal (SDG) 5 (gender equality) and SDG 6 (ensure availability and sustainable management of water and sanitation for all). It is closely aligned with ADB’s Strategy 2030 17 operational priority 4 (making cities more livable), with its focus on supporting infrastructure and services in urban areas and preparing integrated urban plans; operational priority 6 (strengthening governance and institutional capacity), with its focus on strengthening institutional capacity for improved inclusive service delivery; and operational priority 2 (accelerating progress in gender equality), with its focus on human development and time poverty reduction.

B. Impacts and Outcome

13. The impact and outcome statements are unchanged from the current project. The project is aligned with the following impacts: (i) economic growth and urban living conditions improved, and (ii) infant mortality in Madhya Pradesh reduced (footnote 8). The project will have the following outcome: quality, coverage, efficiency, and sustainability of urban service delivery in Madhya Pradesh improved. The project will expand the outcome of the current project by (i) benefiting an additional 185,000 households (1.3 million people) with improved water supply services; (ii) expanding integrated storm water and sewage management services from four to 10 ULBs, benefiting an additional 76,760 households; and (iii) expanding the capacity development output to include strengthening of project ULBs’ capability in O&M of water supply and integrated storm water and sewage infrastructure to enhance sustainability.

C. Outputs

14. The following are the two key outputs of the additional financing project.18

15. Output 1: Water supply and integrated storm water and sewage infrastructure improved. The project will support construction of water supply infrastructure in additional 64

16 Includes the preparation of an integrated urban action plan which consists of (i) citywide visioning following a consultative process; (ii) an urban profile covering economic competitiveness, resilience, inclusivity, and sustainability aspects; and (iii) an investment program encompassing short-, medium-, and long-term investments with an implementation plan. The project management design and supervision consultant will design prioritized subprojects for investment under the project. 17 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila. 18 The revised design and monitoring framework is in Appendix 1. Rearrangement of the current project’s design and monitoring framework indicators into two distinct outputs was done to establish clear alignment of indicators with respect to project outputs.

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ULBs and construction of integrated storm water and sewage management infrastructure in an additional six ULBs, as well as piloting integrated urban planning in two ULBs. By 2027, (i) water treatment capacity will be increased by 148 million liters per day to improve the quality of water supply; (ii) 3,100 kilometers of water supply pipelines will be installed for improved coverage of piped water supply; (iii) 185,000 households will be connected with continuous metered piped water supply systems; (iv) 7 sewage and septage treatment plants with a total capacity of 45 million liters per day will be constructed; and (v) 880 kilometers of sewer and storm water networks will be installed for wastewater management. The project will provide all vulnerable19 households in service areas with individual water and sewer connections and implement non-network sanitation solutions with fecal management in slums by integrating with the storm water and sewage subprojects. The subproject selection criteria remain the same as the current project which include technical, economic and financial, safeguards, and institutional criteria as detailed in the project administration manual (PAM).20

16. Output 2: Institutions strengthened and capacity developed. This output will be delivered through implementation of prioritized reforms, institutional strengthening, and capacity building actions. Activities include (i) implementing a capacity development plan on water sector reforms and urban governance with focus on large-scale training programs of ULB staff and public representatives, (ii) supporting project ULBs to implement a sustainability plan,21 (iii) preparing integrated urban development plans of two ULBs following the concept of making cities more livable and building the MPUDC’s capacity to replicate in other ULBs, and (iv) supporting the implementation of affirmative actions for GESI. By 2027, (i) 230,000 households will be reached by BCC awareness campaigns on the new service level (70–135 liters per capita per day), metered house connections, volumetric tariff, water conservation, sanitation, and hygiene; (ii) a geographical information system for effective O&M of water services in each project ULB will be established and operational; (iii) 400 people from the UDHD, MPUDC, and public representatives will report increased knowledge on utility O&M, citywide inclusive sanitation, the sustainability plan, and the GESI action plan; (iv) information-technology-based project management and water and wastewater assets operational performance tracking systems will be operational; (v) water safety plans will be implemented in 128 ULBs; (vi) a customer service center will be established in each project ULB to strengthen public trust; (vii) volumetric water billing services will be delivered to 100% of households coupled with GOMP-led urban property tax reforms and e- governance; (viii) 100 women students will gain professional experience through an internship program at the MPUDC; and (ix) 600 students (300 girls) in project ULBs will report enhanced knowledge in conducting water audits in schools and households.

D. Investment and Financing Plans

17. The overall project is estimated to cost $784.7 million, comprising the current project cost of $399.0 million and the additional financing project cost of $385.7 million (Table 1). The ADB loan for the current project is $275.0 million and for the additional financing is $270.0 million (Table 2). Possible cost increases because of COVID-19 are expected to be marginal and can be covered by the contingency. Detailed cost estimates by expenditure categories and detailed cost estimates by financier are in the PAM (footnote 20).

19 Vulnerable households include scheduled castes, scheduled tribes and other backward classes, and below the poverty line households. 20 Project Administration Manual (accessible from the list of linked documents in Appendix 2). 21 The sustainability plan is in Appendix 2 of the Project Administration Manual (accessible from the list of linked documents in Appendix 2).

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Table 1: Project Investment Plan ($ million) Current Additional Item Amounta Financingb Total A. Base Costc 1. Water supply and integrated storm water and sewage 239.7 304.7 544.4 infrastructure improved 2. Systems to ensure sustainable urban infrastructure 101.8 101.8 operation and management established 3. Institutions strengthened and capacity developed 4.0 25.9 29.9 Subtotal (A) 345.5 330.6 676.1 B. Contingenciesd 36.4 47.9 84.3 C. Financing Charges During Implementatione 17.1 7.2 24.3 Total (A+B+C) 399.0 385.7 784.7 a Refers to the current amount. Includes taxes and duties of $44.8 million financed from government resources by cash contribution. b Includes taxes and duties of $31.8 million to be financed from government resources by cash contribution. c In mid-2020 prices as of 31 March 2020. Exchange rate of $1 = ₹72.4 is used. d Physical contingencies computed at 5.0% for civil works and equipment. Price contingencies computed at 1.5%– 1.6% on foreign exchange costs and 4.0% on local currency costs; includes provision for potential exchange rate fluctuation under the assumption of a purchasing power parity exchange rate. e Includes interest and commitment charges. Interest during construction for the Asian Development Bank loan has been computed at the 5-year United States dollar fixed-swap rate plus a spread of 0.5% and a maturity premium of 0.1%. Commitment charges for the Asian Development Bank loan are 0.15% per year to be charged on the undisbursed loan amount. Source: Asian Development Bank estimates.

18. The government has requested a regular loan of $270 million from ADB’s ordinary capital resources to help finance the project. The loan will have a 25-year term, including a grace period of 5 years; an annual interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a commitment charge of 0.15% per year; and such other terms and conditions set forth in the draft loan and project agreements. Based on the straight-line method, the average maturity is 15.25 years, and the maturity premium payable to ADB is 0.10% per year.

19. The financing plan is in Table 2.

Table 2: Financing Plan Currenta Additional Financing Total Share of Share of Share of Amount ($ Total Amount ($ Total Amount ($ Total Source million) (%) million) (%) million) (%) Asian Development Bank OCR (regular loan) 275.0 68.9 270.0 70.0 545.0 69.5 Government of Madhya 124.0 31.1 115.7 30.0 239.7 30.5 Pradesh Total 399.0 100.0 385.7 100.0 784.7 100.0 OCR = ordinary capital resources. a Refers to the current amount. Source: Asian Development Bank estimates.

20. Climate mitigation is estimated to cost $17.2 million, and climate adaptation is estimated to cost $39.1 million, including 10% contingencies and 12% taxes. ADB will finance 73% of mitigation costs and 75% of adaptation costs. Key climate change measures to make subprojects low emission and climate resilient include greenhouse gas reduction through surface water source augmentation and strengthening for long-term availability which will reduce energy use for groundwater pumping, water conservation through BCC awareness and NRW management,

7 groundwater recharge measures in ULBs where groundwater is the drinking water source, and raised elevation of critical infrastructure considering high flood levels.22

E. Implementation Arrangements

21. The implementation arrangements are summarized in Table 3 and described in detail in the PAM (footnote 20). The executing and implementing agencies will remain unchanged from the current project. ULBs are responsible for O&M, including the supervision of 10-year O&M works undertaken by contractors. The water supply and sanitation unit of each ULB will be equipped with the necessary staff, office space, facilities, and equipment. Construction materials, as well as consultants and contractors, are likely to be all locally sourced, which will minimize risks associated with relying on global supply chains and travel restrictions that could complicate project implementation. The project implementation period of seven years provides adequate cushion for potential delays caused by COVID-19.

Table 3: Implementation Arrangements Aspects Arrangements Implementation period October 2020–March 2028 Estimated completion date 30 September 2027 Estimated loan closing date 31 March 2028 Management (i) Oversight body Empowered and executive committee Chief secretary, Government of Madhya Pradesh (chair) Principal secretaries, Ministry of Finance, UDHD, PHED (members) Managing director, MPUDC (member secretary) (ii) Executing agency UDHD (iii) Key implementing agency MPUDC (iv) Implementation unit Project management unit, Bhopal, 46 staff Project implementation units (10) with 4–17 staff members each Water and sanitation section in each project ULB Procurement Open competitive bidding 39 contracts $317.70 milliona (nationally advertised) Consulting services PMDSC QCBS (80:20) 1,886 person-months $8.20 million ISCBC QCBS (90:10) 220 person-months $3.00 million Individual consultants 10 person-months $0.30 million Retroactive financing and/or MPUDC requested advanced contracting for works and consultants. advance contracting Retroactive financing will be up to 20% of the ADB loan amount for eligible expenditures incurred no more than 12 months before signing of the loan agreement. Disbursement The loan proceeds will be disbursed in accordance with ADB's Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed between the government and ADB. ADB = Asian Development Bank; ISCBC = institutional strengthening and capacity building consultant; MPUDC = Madhya Pradesh Urban Development Company Limited; PHED = Public Health Engineering Department; PMDSC = project management, design, and supervision consultant; QCBS = quality- and cost-based selection; UDHD = Urban Development and Housing Department; ULB = urban local body. a Includes 3-year operation and maintenance costs. Source: Asian Development Bank.

III. DUE DILIGENCE

A. Technical

22. The project design adopts a technically viable approach to improve water supply services in 64 ULBs and wastewater management services in eight ULBs. Water supply subproject

22 Climate Change Assessment (accessible from the list of linked documents in Appendix 2).

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designs incorporate specific measures in line with the policies of the GOMP such as (i) use of reliable surface water sources with adequate storage capacity at least meeting ULBs’ annual demands; (ii) the planning horizon for infrastructure sizing meeting 30 years of water demand; (iii) universal coverage; and (iv) inclusion of demand management measures, such as 100% customer metering, volumetric billing, NRW control, and BCC on water conservation. Apart from striving for optimizing sustainable surface water sources, the designs of subprojects are sensitive towards the potential impact of climate change, and due consideration is given for additional freeboard allowance for key structures like wet wells, treatment plants, and water intakes. Adequate underground water recharging approaches will be implemented in ULBs where the groundwater is the source of drinking water. Wastewater management subprojects are a mix of onsite and offsite sanitation approaches, including fecal sludge management in isolated areas coupled with storm water or flood management, to address the full range of wastewater generated and discharged in the local environment to improve the livability of the towns. The MPUDC’s technical review committee approved the technical design as the most appropriate techno- economic solutions considering full lifecycle costs.

B. Economic and Financial

23. Economic analysis. The economic rationale for the GOMP’s intervention is sound, as the overall project aims to provide stronger and more sustainable urban services in the project ULBs, focusing on water supply and wastewater management services. This being a sector project, the economic analysis evaluated the economic feasibility of interventions of four sample subprojects in four ULBs.23 The estimated economic internal rates of return of the sample subprojects ranged from 11.6% to 19.8%, higher than the economic opportunity cost of capital estimate of 9.0%, indicating significant economic returns. The results of the sensitivity analysis revealed that the overall results are satisfactory, except for when benefits decrease by 20%, or under a combined worst-case scenario for the Rajnagar wastewater subproject. However, the sample subprojects’ economic viability is expected to further increase if unquantifiable benefits like environmental improvements are included in the analysis. Construction of assets under this project along with capacity building of ULBs and the MPUDC will benefit about 0.15 million people from four sample subprojects. The estimated poverty impact ratio in the sample subprojects varies from 23.4% to 25.4%.24 Considering the percentage of urban households below the poverty line in Madhya Pradesh (21%) (footnote 5), the sample subprojects are expected to benefit poor people considerably.

24. Financial analysis. Financial analysis of the project was done as per ADB guidelines,25 and was carried out on the same four subprojects as in the economic analysis. Water subprojects are likely to generate adequate revenues for full O&M cost recovery with regular tariff revisions. Wastewater subprojects are unlikely to generate adequate revenues for full O&M cost recovery, unless there are substantial tariff revisions. Sensitivity analyses show that results are sensitive to changes in tariff and O&M cost. 26 Overall, the financial sustainability risk is categorized substantial. ULBs will implement the sustainability plan (footnote 21) to achieve full O&M cost recovery through (i) adopting a tariff structure more in line with costs, (ii) reducing NRW and operations costs, (iii) improving billing and collection efficiency, and (iv) increasing other own-

23 Badoda (water supply), Gohad (water supply), Khajuraho (wastewater), and Rajnagar (wastewater). 24 Economic Analysis (accessible from the list of linked documents in Appendix 2). 25 ADB. 2015. Financial Management Assessment Technical Guidance Note. Manila; and ADB. 2019. Financial Analysis and Evaluation Technical Guidance Note. Manila. 26 A sensitivity analysis was carried out with three scenarios: (i) tariff increase lowered (1% for water supply and 5% for wastewater), (ii) collection efficiency reduced by 10%, and (iii) annual O&M expenditure increased by 8.0% (compared with 5.5%).

9 source revenues. The plan will also define requirements for budget transfers from GOMP to ULBs to address the viability gap of the wastewater systems.

C. Sustainability

25. The project has taken a multidimensional approach to ensure sustainability. GOMP has demonstrated its commitment to strengthening ULBs by devolving responsibilities, authority, and functions. The project uses performance-based DBO contracts with a 10-year O&M period to address ULBs’ weak O&M capacity, transfer the knowledge and skills, and establish utility systems at the local level. GOMP is already implementing reforms in ULBs to (i) improve billing and the collection efficiency of tariffs and taxes, (ii) establish geographic information system mapping of all properties, and (iii) computerize all municipal functions. In tandem with GOMP reforms to strengthen the revenue base of ULBs, the project will support ULBs’ institutional strengthening and capacity building with the objective of planning, implementing, and sustaining water supply and wastewater infrastructure and services beyond the 10-year O&M period. A tripartite agreement among the UDHD, MPUDC, and ULBs requires project ULBs to open an escrow account where revenue from water and wastewater user tariffs will be deposited, which will ensure timely payment to DBO contractors and provide incentives for the contractors to perform well. The project will also finance the early phase of O&M by DBO contractors to support ULBs in the transition period, and support the MPUDC in closely monitoring project ULBs’ performance against measurable indicators agreed among ADB, the UDHD, and the MPUDC.

D. Governance

26. Financial management. A financial management assessment of the MPUDC was conducted and found that the MPUDC has adequate financial management capacity to (i) record the required financial transactions, (ii) provide reliable annual financial statements and audit reports in a timely manner, and (iii) safeguard the financial assets. The assessed premitigation financial management risk is substantial, mainly because of incomplete staffing, there being no audit committee in place, and delays in approval of audited entity financial statements. The main risk mitigation actions include (i) appointing qualified financial staff to the project implementation unit and engaging a financial management expert to support the PMU; (ii) providing training in ADB’s requirements, disbursement procedures, and systems; (iii) including comprehensive financial information in the quarterly progress reports; (iv) ensuring the project is regularly audited by the entity’s internal audit function; (v) monitoring closely the financial management arrangements and budget approval and availability during the first year of implementation; and (vi) improving the internal controls framework through the establishment of an audit committee.

27. Procurement. All procurement of goods and works and consultant recruitment will adhere to the ADB Procurement Policy (2017, as amended from time to time). Stakeholder consultation and review of the procurement under the current project was done. Learning under the current project indicates that performance-based hybrid DBO contracts 27 are suitable for achieving project outputs and outcomes. This contract modality enables private sector participation in addressing the capacity gap at the ULB level for O&M of water and wastewater assets during the operation period and transfer of skills to ULBs. The project will continue to use DBO contracts, which contributes to achieving value for money.

27 Hybrid design–build contracts for treatment plants, item rate for pipe-laying works, and 10 years O&M service. During the O&M phase, part of the contractor’s payment is linked to performance targets.

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28. Anticorruption. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and the MPUDC. The specific policy requirements and supplementary measures are described in the PAM (footnote 20). Based on risk assessments, mitigation measures include (i) continuing with e-procurement; (ii) establishing a project website and regular updating of the website to enhance transparency in project implementation, procurement, and safeguards; and (iii) continuing with the current mechanism for effective grievance resolution. Integrity due diligence for the MPUDC has been conducted for the project and has identified no significant integrity risks.

E. Poverty and Social

29. A summary poverty reduction and social strategy has been prepared, with measures to address the social impacts and increase the distribution of project benefits.28 The project will help achieve SDG 6 (access to clean water and sanitation for all) and SDG 5 (gender equality), and indirectly help reduce poverty. Economic shocks resulting from COVID-19 will deepen the poverty of those who are already poor. The project will cover all vulnerable households29 with individual water connections in 64 ULBs at no cost to the households, implement non-network sanitation with fecal management in slums by integrating with the storm water and sewage subprojects in six ULBs, and conduct BCC campaigns in vulnerable communities on individual house connections, water conservation, health, sanitation, hygiene and awareness on the spread of epidemics such as COVID-19, and measures required to avoid transmission.

30. Gender. The project is classified as effective gender mainstreaming. The following affirmative measures are included in the project design: (i) increased access to water supply and sanitation services for poor and vulnerable households; (ii) awareness-raising activities targeting equal participation of women and men through a structured BCC and community participation plan; (iii) an internship program for technical skill training to create a pool of women graduates for future employment opportunities; (iv) safety audits to assess women’s safety perceptions in the integrated action plans for two ULBs; (v) increased representation of women and transgender people in project decision-making committees, such as grievance redress committees (GRCs); and (vi) building capacities of female staff in the MPUDC and ULBs, and of elected women and third-gender representatives in project ULBs. The PMU, with support from project consultants, will implement the overall GESI action plan.30

F. Safeguards

31. The current project’s compliance with the safeguard requirements has been satisfactory and risks have been satisfactorily managed. The MPUDC’s institutional capacity to manage environmental and social impacts has been developed under the current project. The PMU has designed and institutionalized its own GRCs and demonstrated its high commitment to managing safeguards. It has also confirmed its willingness to safeguard the interests of indigenous peoples through issuance of a government order for their representation in GRCs and contractual provisions to ensure beneficial impacts and inclusion of indigenous peoples in project benefits. Capacity to manage safeguards will be further strengthened and supported by the project management design and supervision consultant and institutional strengthening and capacity development consultant. Subprojects with significant involuntary resettlement, environment, and/or indigenous peoples impact (Category A) will not be eligible for funding under the project.

28 Summary Poverty Reduction and Social Strategy (accessible from the list of linked documents in Appendix 2). 29 Footnote 19; the urban slum population is 25% of the total population. 30 Gender Equality and Social Inclusion Action Plan (accessible from the list of linked documents in Appendix 2).

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32. Social safeguards. The project is classified B for involuntary resettlement and indigenous peoples. The resettlement framework and indigenous peoples planning framework of the current project have been updated. A draft resettlement plan, two involuntary resettlement due diligence reports, and an indigenous peoples due diligence report31 were prepared for sample subprojects. The involuntary resettlement impacts are mostly temporary (37 affected people face temporary income loss in the Rajnagar subproject) during the construction phase. Scheduled tribes will benefit from the project and some of the ULBs of the project are scheduled areas.32 Identified measures in the draft resettlement plan are adequate to deal with the identified risks, while the specific actions in the indigenous peoples due diligence report aim at enhancing beneficial impacts to the scheduled tribe population located in Niwas, a scheduled area. The draft resettlement plans and due diligence reports will form part of the contract document and will be updated during detailed design and submitted to ADB for review and disclosure prior to the start of civil works. The updated resettlement framework, indigenous peoples planning framework, and plans will be disclosed to project-affected people and indigenous peoples, and on the ADB and project websites.

33. Environment. No significant environmental safeguard implementation issues have arisen under the current project. The project is classified B for environment. The environmental assessment and review framework of the current project has been updated.33 The project will have no significant adverse impacts on the environment. The MPUDC prepared three draft initial environmental examination (IEE) reports,34 which will be updated based on detailed design during implementation. The IEEs show that the subprojects are not likely to cause any significant adverse irreversible environmental impacts, and any potential impacts during construction and operation can be mitigated through appropriate design and good practices. The subproject locations are not within or adjacent to environmentally sensitive areas and will not adversely impact any forest area, wildlife sanctuary, national park, critical habitat, or other eco-sensitive area for biodiversity ecosystems. The subproject in heritage locations of Sanchi will avoid significant impacts on physical cultural resources. The IEE of this subproject has included a heritage impact assessment study conducted by qualified and experienced experts. Appropriate measures for mitigating any impacts, ensuring the safety and integrity of the physical cultural resources, are included in the environmental management plan. The PMU will continue to prepare and submit semiannual environmental monitoring reports for ADB review and disclosure.

G. Risks and Mitigating Measures

34. Major risks and mitigating measures are summarized in Table 4 and described in detail in the risk assessment and risk management plan.35

31 Social safeguards assessments of three sample subprojects were conducted. A draft resettlement plan for the Rajnagar wastewater subproject, draft involuntary resettlement due diligence reports for Niwas and Sanchi water supply subprojects, and a draft indigenous peoples due diligence report for the Niwas water supply were prepared. 32 The Constitution of India uses the following characteristics to identify scheduled tribes: tribes’ primitive traits, distinctive culture, shyness with public at large, geographical isolation, and social and economic backwardness. The criteria for declaring any area as a “scheduled area” are (i) preponderance of tribal population, (ii) compactness and reasonable size of the area, (iii) a viable administrative entity, and (iv) economic backwardness of the area. 33 Environmental Assessment and Review Framework (accessible from the list of linked documents in Appendix 2); updated to be consistent with the latest legal framework and include lessons from and response to COVID-19. 34 Three draft IEEs were prepared for representative sample subprojects: (i) water supply scheme for Sanchi and Pachore ULBs, (ii) water supply improvement in Bahmani Banjar and Niwas, and (iii) Rajnagar wastewater. 35 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

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Table 4: Summary of Risks and Mitigating Measures Risks Mitigation Measures Implementation Readiness is high through advance actions. A protocol for communicable diseases such as delays result in time COVID-19 will be required to be followed by contractors, consultants, the PMU, and ULBs to and cost overruns ensure appropriate measures for ensuring adequate health and safety of all while resuming and performing project-related works. An information-technology-based project management system will be established to track scattered subproject implementation progress. ULBs’ weak O&M The project includes performance-based design–build–operate contracts with a 10-year O&M capacity and limited period. Capacity-building measures for ULB strengthening, both ongoing under the GOMP financial capacity in program and included under the project, will facilitate each ULB to increase revenues for full ensuring O&M cost recovery by (i) adopting volumetric tariffs with annual tariff increments starting from sustainability of the third year of project implementation, achieving 90% billing and 80% collection efficiency assets against water and sewerage charges within two years of adoption of volumetric tariff; (ii) setting up a computerized accounting system; (iii) enhancing ULBs’ own-source revenue; and (iv) monitoring and equipping the water and sanitation section of each ULB with skilled staff. Wastewater subprojects will entail higher tariff revisions on the part of ULBs. In the event of any shortfalls, GOMP has confirmed support in the form of revenue grants to sustain O&M expenditures for wastewater management. Financial The MPUDC will (i) appoint qualified financial staff to the project implementation units and management engage a financial management expert to support the PMU, (ii) include comprehensive arrangements need to financial information in the quarterly progress reports, (iii) ensure that the project is regularly be strengthened to audited by the entity’s internal audit function, (iv) monitor closely the financial management ensure that funds are arrangements, and (v) establish an audit committee to improve its governance and internal used for the intended control framework. In addition, ADB will provide training in its financial management purpose requirements, disbursement procedures, and systems. ADB = Asian Development Bank, COVID-19 = coronavirus disease, GOMP = Government of Madhya Pradesh, MPUDC = Madhya Pradesh Urban Development Company Limited, O&M = operation and maintenance, PMU = project management unit, ULB = urban local body. Source: Asian Development Bank.

IV. ASSURANCES AND CONDITIONS

35. The governments of India and Madhya Pradesh and the MPUDC have assured ADB that implementation of the project shall conform to all applicable ADB policies including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the PAM and loan documents.

36. The governments of India and Madhya Pradesh and the MPUDC have agreed with ADB on certain assurances for the additional financing, which will be included in the loan agreement and project agreement.

V. RECOMMENDATION

37. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of $270,000,000 to India for the additional financing of the Madhya Pradesh Urban Services Improvement Project, from ADB’s ordinary capital resources, in regular terms, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; for a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan and project agreements presented to the Board.

Masatsugu Asakawa President

3 September 2020

Appendix 1 13

REVISED DESIGN AND MONITORING FRAMEWORK

Impacts the Project is Aligned with Current project Economic growth and urban living conditions improved, and infant mortality in Madhya Pradesh reduced (Twelfth Five- Year Plan and Madhya Pradesh Vision 2018 and Vision to Delivery Road Map, 2020–2025)a

Overall project Unchanged Data Sources and Reporting Results Chain Performance Indicators with Targets and Baselines Mechanisms Risks Outcome Current project By 2023 Current Overall project project Quality, By 2028 (changed) Climate coverage, Quality and coverage change may efficiency, and cause sustainability of Current project a.–c. State a. Continuous piped water supply coverage increased to 90% shortage in urban service census sex- (300,000 households), including at least 25% from vulnerable surface water delivery in and poverty- households, BPL households, and households headed by and Madhya disaggregated women in 64 towns (2015 baseline: 0%) groundwater Pradesh baseline survey sources improved Overall project at project a. Continuous piped water supply coverage increased to 90% (unchanged). inception and (485,000 households) including at least 25% from vulnerable Overall project updated households, BPL households, and households headed by Unchanged annually women in 128 ULBs (2015 baseline: 0%) (OP 1.3, OP 4.1) (unchanged) Current project b. Time for fetching water by women in households headed by women and/or BPL households reduced to 10 minutes (2015 baseline: 55 minutes) Overall project b. Unchanged. (OP 2.4)

Current project c. Coverage of decentralized sewage management increased to at least 70%, covering 6,000 households, including at least 25% vulnerable households, BPL households, and households headed by women, in four ULBs) (2015 baseline: 0%) Overall project c. Coverage of decentralized sewage management increased to at least 70%, covering 82,760 households including at least 25% vulnerable households, in 10 ULBs (2015 baseline: 0%) (OP 1.3, OP3.3, OP 4.1)

Current Project d. 90% of the water quality tests met the country standards (2015 baseline: 0%) d.–e. ULB Overall Project annual reports d. Unchanged on service-level benchmarks Current project (unchanged) e. Incidence of waterlogging and/or flooding reduced by 50% in four towns (2015 baseline: seven flooding events per year) Overall project e. Incidence of waterlogging and/or flooding reduced by 50% in 10 ULBs (2015 baseline: seven flooding events per year) (OP 4.1)

Efficiency and sustainability Current project

14 Appendix 1

Data Sources and Reporting Results Chain Performance Indicators with Targets and Baselines Mechanisms Risks f. Nonrevenue water maintained at less than 15% for piped water supply (2015 baseline: more than 40%) f.–g. PPMS from Overall project MPUDC f. Unchanged (unchanged)

Current project g. 80% of annual O&M cost recovered from water tariff collection in 70% of towns (2015 baseline: less than 20% in sample towns) Overall project g. 90% of annual O&M cost recovered from water tariff in 70% of ULBs (2015 baseline: less than 20% in sample ULBs) (OP 4.2) Outputs Current project By 2023

Output 1 Overall project Current By 2027 project Water supply Current project 1a.–b. PPMS 1a. Water treatment capacity of 180 MLD installed (2015 infrastructure in from MPUDC baseline: 90 MLD) 64 project towns and Overall project 1a. Water treatment capacity of 328 MLD installed (2015 integrated baseline: 90 MLD) (OP 4.1) storm water and sewage Current project infrastructure in 1b. 3,800 km of water supply pipes installed (2015 baseline: 130 two tourist km) towns improved Overall project 1b. 6,900 km of water supply pipes installed (2015 baseline: 130 Overall project km) (OP 4.1) Water supply infrastructure in Current project 128 project 1c. 300,000 households provided with metered piped 1c.–f. Quarterly ULBs and connections, including at least 25% from vulnerable households, progress integrated BPL households, and households headed by women, in project reports from storm water and areas. (2015 baseline: 0) MPUDC sewage Overall project (unchanged) infrastructure in 1c. 485,000 households provided with 24/7 metered piped connections with at least 7 meters pressure, including at least 12 ULBs b improved 25% from vulnerable households, in project areas (2015 baseline: 0) (OP 4.1) (changed) Current project 1d. Threec MLD sewage or septage treatment plants constructed (2015 baseline: 0) Overall project 1d. 11 septage treatment plants with cotreatment and total capacity of 60 MLD constructed (2015 baseline: 0) (changed) ( OP4.1)

Current project 1e. 120 km of new sewer and storm water mains and networks in Khajuraho and Rajnagar installed (2015 baseline: 82 km) Overall project 1e. 1,000 km of new sewer and storm water mains and networks in five ULBsd installed (2015 baseline: 82 km) (OP 4.1) Current project 2e. Underground water recharge systems maintained in eight ULBs (2015 baseline: 0) Overall project 1f. Unchanged

Appendix 1 15

Data Sources and Reporting Results Chain Performance Indicators with Targets and Baselines Mechanisms Risks Output 2 Current Current project Low project 2a. 23 performance-based DBO contracts covering 64 project 2a.–e. Quarterly consumer Systems to towns delivered (2015 baseline: 0) progress and political ensure Overall project reports from willingness sustainable 2a. Moved as Activity 1.1 MPUDC lead to lack of urban periodical infrastructure Current project 2b. At least 20 water supply customer service centers adjustment of operation and established in the project towns (2015 baseline: 0) water tariffs management in (unchanged). all the project Overall project 2b. Changed and moved as 2h of overall output 2 towns established Current project 2c. Volumetric water billing service delivered to 100% customers Overall project (2015 baseline: 0) Deleted and merged partly Overall project 2c. Unchanged and moved as 2i overall output 2 with output 1 and output 3 Current project 2d. Water supply pressure of at least 7 meters achieved Remarks: consistently at consumer end (2015 baseline: 0) 2a–c: Indicators for institutional Overall project 2d. Merged in 1a of overall output 1 strengthening of MPUDC and Current project ULBs by 2e. Underground water recharge systems maintained in four realizing these towns (2015 baseline: 0) targets Overall project 2e. Changed and moved under output 1 as 1f 2d–e: Indicators for achieving quality and improved water services Current Current project Limitation of Project Output 3a. At least 240,000 households reached by awareness-raising local 3 campaigns on water conservation, environmental protection, and recruitment Capacity of hygiene (with at least 50% of participants from households procedures MPUDC and headed by women or BPL) constrains ULBs in 64 Overall project MPUDC from project towns 2a. At least 470,000 households reached by awareness-raising 2a. Annual attracting improved campaigns on water conservation, environmental protection, and state data from good talent hygiene (with at least 50% women participants) (OP2.3.1) MPUDC from the labor Overall project market Current project Output 2 (unchanged). 3b. Grievance redress committees (at least 30% of committee Institutions representatives are women) constituted in each of the 64 project strengthened towns and capacity developed c Overall project 2b.–k. Quarterly 2b. Grievance redress committees (at least 30% of committee (changed and project progress representatives are women) constituted in each of the 128 ULBs renamed as report, PPMS, output 2) and Project Current project (changed) Completion 3c. GIS for effective O&M of water services in 64 towns Report established and operational

16 Appendix 1

Data Sources and Reporting Results Chain Performance Indicators with Targets and Baselines Mechanisms Risks Overall project Prolonged 2c. GIS for effective O&M of water services in 128 ULBs impact of established and operational COVID-19 on local value Current project chains could 3d. 400 people from MPUDC and ULBs trained on managing delay and monitoring DBO performance-based contracts (at least 30% procurement are women) of goods and Overall Project services, 2d. 800 people from UDHD, MPUDC, and elected resulting in representatives of project ULBs (including 80% eligible female delayed staff and women and third-gender elected representatives) project reported increased knowledge on O&M of WSS services, completion. citywide inclusive sanitation, sustainability plan, and GESI action (new risk). plan implementation. (OP 2.3.1, OP 6.2)

Current project 3e. Information technology systems to improve ULBs’ day-to-day management in 15 pilot towns set up and operational Overall project 2e. Information-technology-based project management and water supply and wastewater subproject operational performance tracking system developed and operational (2020 baseline: 0)

Current project 3f. Sanitation safety plans developed and implemented in 64 project towns Overall project 2f. Water safety plans developed and implemented in 128 ULBs (2020 baseline: 0)

Current project 3g. 400 people (at least 50% are women) trained in income- earning opportunities on project asset O&M Overall project 2g. 400 people (at least 50% are women) reported improved technical skills for income-earning opportunities

Current project 2b. At least 20 water supply customer service centers established in the project towns (2015 baseline: 0) Overall project 2h. At least 128 water supply customer service centers established in the project ULBs (2015 baseline: 0) (OP 6.2)

Current project 2c. Volumetric water billing service delivered to 100% customers (2015 baseline: 0) Overall project 2i. Volumetric water billing service delivered to 100% households coupled with GOMP-led urban property tax reforms and e-governance (2015 baseline: 0)

Current project None Overall project 2j. At least 100 women student gain professional experience through an internship program at MPUDC (2020 baseline: not applicable) (OP 2.3.1)

Appendix 1 17

Data Sources and Reporting Results Chain Performance Indicators with Targets and Baselines Mechanisms Risks Current project None Overall project 2k. About 600 students, including at least 300 girls, in project ULBs reported enhanced knowledge in conducting water audits in schools and households (2020 baseline: not applicable) Key Activities with Milestones Current project 1. Water supply and integrated storm water and sewage infrastructure improved 1.1 Award all 28 performance-based DBO contracts of current project (Q3 2020) and of 39 DBO packages of additional financing (Q1 2022) 1.2 Construction of water supply and integrated storm water and sewage system infrastructure (Q1 2019–Q3 2025) 1.3 Commission and O&M of water supply and integrated storm water and sewage (Q3 2024–Q1 2028) 2. Institutions strengthened, and capacity developed 2.1 Deploy two staff to water and sanitation section at each ULB (Q3 2020–Q4 2027) 2.2 Establish 128 water supply customer service centers (Q2 2023–Q4 2024) 2.3 Conduct customer satisfaction surveys (Q2 2025–Q3 2026) 2.4 Prepare and implement water safety plans in ULBs (Q1 2022–Q1 2025) 2.5 Train 800 people in O&M of water supply and integrated storm water and sewage subprojects (Q3 2021–Q4 2027) Management Activities Procure integrated storm water and sewage contract (Q4 2021–Q3 2022) Recruit two consultants completed (Q3 2020–Q2 2021) Update environment management plan, resettlement plan, due diligence report, and indigenous peoples plan (Q3 2021– Q2 2022) Implement GESI action plan key activities (Q4 2020–Q3 2027) Implement sustainability plan (Q4 2020–Q3 2027) Inputs Asian Development Bank Government Loan (ordinary capital resources) $124.0 million (current) $275 million (current) $115.7 million (additional) $270 million (additional) $239.7 million (overall)

$545 million (overall)

Assumptions for Partner Financing Not applicable BPL = below poverty line, COVID-19 = coronavirus disease, DBO = design–build–operate, GESI = gender equality and social inclusion, GIS = geographic information system, GOMP=Government of Madhya Pradesh, km = kilometer, MLD = million liters per day, MPUDC = Madhya Pradesh Urban Development Company Limited, OP = operational priorities, O&M = operation and maintenance, PPMS = project performance monitoring system, Q = quarter, UDHD = Urban Development and Housing Department, ULB = urban local body. a Government of Madhya Pradesh. 2019. Vision to Delivery Roadmap, 2020–2025 and Annual Plan, 2020–2021. Bhopal. b Institutions include UDHD, MPUDC and project ULBs. List of ULBs are in Appendix 1 of Project Administration Manual (accessible from list of linked documents in Appendix 2). The term “town” used in current project statement and indicator and “ULB” used in overall project statement and indicator are interchangeable. c A total of 4 sewage or septage treatment plants will be constructed under current project against the original target of 3. d Dhamnod, Khajuraho, Maihar Rajnagar, and Sanchi. Contribution to the Strategy 2030 Operational Priorities: OP 1.3: Poor and vulnerable people with improved standards of living (number). Target: 0.7 million people OP 2.3.1: Women with strengthened leadership capacities (number). Target: 200 people OP 2.4: Women and girls with increased time savings. Target: 45 minutes OP 3.3: People benefitting from strengthened environmental sustainability (number): Target: 0.4 million people OP 4.1: People benefitting from improved services in urban areas (number). Target: 2.9 million OP 4.2: Entities with improved urban planning and financial sustainability (number). Target: At least 128 ULBs OP 6.2: Entities with improved service delivery (number). Target: At least 128 ULBs Source: Asian Development Bank.

18 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=42486-018-3

1. Loan Agreement 2. Project Agreement 3. Sector Assessment (Summary): Water and Other Urban Infrastructure and Services 4. Project Administration Manual 5. Summary of Project Performance 6. Contribution to the ADB Results Framework 7. Development Coordination 8. Financial Analysis 9. Economic Analysis 10. Country Economic Indicators 11. Summary Poverty Reduction and Social Strategy 12. Overall Gender Equality and Social Inclusion Action Plan 13. Initial Environmental Examination: Sewerage and Storm Water improvement in Rajnagar Town 14. Initial Environmental Examination: Water Supply Improvement in Bamhani Banjar and Niwas Towns 15. Initial Environmental Examination: Water Supply Scheme in Sanchi and Pachore Towns 16. Environmental Assessment and Review Framework 17. Land Acquisition and Involuntary Resettlement Due Diligence Report: Water Supply Scheme in Sanchi 18. Land Acquisition and Involuntary Resettlement Due Diligence Report: Water Supply Scheme in Niwas Town 19. Indigenous People Screening and Due Diligence Report: Water Supply Scheme in Niwas town 20. Resettlement Plan: Sewerage and Storm Water Improvement in Rajnagar 21. Resettlement Framework 22. Indigenous Peoples Planning Framework 23. Risk Assessment and Risk Management Plan 24. Climate Change Assessment

Supplementary Documents

25. Social, Poverty, and Gender Analysis 26. Financial Management Assessment