African Development Bank Angola Institutional

AFRICAN DEVELOPMENT BANK

Public Disclosure Authorized Disclosure Public

ANGOLA

INSTITUTIONAL SUPPORT FOR THE SUSTAINABILITY OF URBAN WATER SUPPLY AND SANITATION SERVICE DELIVERY

OWAS DEPARTMENT

Public Disclosure Authorized Authorized Disclosure Public

March 2015

TABLE OF CONTENTS

I– STRATEGIC THRUST & RATIONALE ...... 1

1.1. PROJECT LINKAGES WITH COUNTRY STRATEGY AND OBJECTIVES ...... 1 1.2. RATIONALE FOR BANK’S INVOLVEMENT ...... 2 1.3. DONOR COORDINATION ...... 3 II. PROJECT DESCRIPTION ...... 4

2.1 DETAILED PROJECT COMPONENTS ...... 4 2.2 TECHNICAL SOLUTION RETAINED AND OTHER ALTERNATIVES EXPLORED ...... 5 2.3 PROJECT TYPE ...... 5 2.4 PROJECT COST AND FINANCING ARRANGEMENTS ...... 6 2.5 PROJECT’S TARGET AREA AND POPULATION ...... 7 2.6 PARTICIPATORY PROCESS FOR PROJECT IDENTIFICATION, DESIGN AND IMPLEMENTATION ...... 8 2.7 BANK GROUP EXPERIENCE, LESSONS REFLECTED IN PROJECT DESIGN ...... 8 2.8 KEY PERFORMANCE INDICATORS ...... 9 III – PROJECT FEASIBILITY ...... 9

3.1 ECONOMIC PERFORMANCE ...... 9 3.2 ENVIRONMENTAL AND SOCIAL IMPACTS...... 10 IV – IMPLEMENTATION ...... 14

4.1 IMPLEMENTATION ARRANGEMENTS ...... 14 4.2 MONITORING ...... 16 4.3 GOVERNANCE ...... 16 4.4 SUSTAINABILITY ...... 17 4.5 RISK MANAGEMENT ...... 18 4.6 KNOWLEDGE BUILDING ...... 19 V – LEGAL INSTRUMENTS AND AUTHORITY ...... 19

5.1 LEGAL INSTRUMENT ...... 19 5.2 CONDITIONS ASSOCIATED WITH BANK’S INTERVENTION ...... 19 5.3 COMPLIANCE WITH BANK POLICIES ...... 20 VI – RECOMMENDATION ...... 20

APPENDIX 1: MAP OF ANGOLA AND PROJECT LOCATION APPENDIX 2: ANGOLA’S COMPARATIVE SOCIO-ECONOMIC INDICATORS APPENDIX 3: TABLE OF ADB’S PORTFOLIO IN THE COUNTRY APPENDIX 4: SIMILAR PROJECTS FINANCED BY THE BANK AND OTHER DEVELOPMENT PARTNERS IN THE COUNTRY APPENDIX 5: WAIVER REQUEST FOR FINANCING 80% OF THE PROJECT COST THROUGH AN AN ADB LOAN

Currency Equivalents June 2014

1UA = US Dollar (USD) 1.54047 1UA = AON 151.30445 1USD = AON 98.21967

FISCAL YEAR:

1 April – 31 March

WEIGHTS AND MEASURES

1 metric tonne = 2204 pounds (lbs) 1 kilogramme (kg) = 2.200 pounds (lbs) 1 metre (m) = 3.28 feet (ft) 1 millimetre (mm) = 0.03937 inch (“) 1 kilometre (km) = 0.62 mile 1 hectare (ha) = 2.471 acres

ACRONYMS AND ABBREVIATIONS

ADB African Development Bank MINEA Ministry of Energy and Water ADF African Development Fund MINECON Ministry of Economic Development AOFO AfDB Angola Field Office MINAMB Ministry of Environment AON Angola Kwanza MINFAMU Ministry of Family Affairs and the CPPR Country Portfolio Performance Review Advancement of Women CSP Country Strategy Paper MIS Management Information System CSO Civil Society Organisations M&E Monitoring and Evaluation DNA National Directorate for Water O&M Operation and Maintenance DP Development Partners PDISA Programa de Desenvolvimento ESU Environmental and Social Unit Institucional do Sector de Águas (Water EPAL Luanda Water Supply and Sewerage Sector Institutional Development Program) Company PFM Public Financial Management EU European Union PIU Project Implementation Unit FCMU Financial and Contract Management Unit PCR Project Completion Report FHH Female Headed Households PND National Development Plan FM Financial Management PWSU Provincial Water and Sanitation Utility GGI Gender Gap Index RMC Regional Member Country GOA Government of Angola SISAS Sistema de Informação Sectorial de Água e HDI Human Development Index Saneamento (Water and Sanitation JAS Joint Assistance Strategy Information System) JMP Joint Monitoring Program TA Technical Assistance INAS Instituto Nacional de Água Potável e U5MR Under 5 Mortality Rate Saneamento (Asset Management Entity) UA Unit of Account INARH Instituto Nacional de Recursos Hídricos WSIDC Water Sector Institutional Development (National Institute for Water Resources Commissino Management) WSS Water Supply and Sanitation IPCC Intergovernmental Panel on Climate WWTP Waste Water Treatment Plant Change IRSE Electricity Sector Regulatory Authority

LOAN INFORMATION Client’s information BORROWER: Republic of Angola (GoA)

EXECUTING AGENCY: Ministry of Energy and Water (MINEA)

Financing plan

Source Amount Instrument USD Million ADB 123.77 US$ Loan GoA 30.94 US$ Counterpart TOTAL COST 154.71US$

ADB’s key financing information

Loan (ADB) Currency United States Dollar (USD) Interest type Enhanced variable spread Loan (floating rate with option to fix) Interest rate spread Funding margin+60 bps lending spread Commitment fee None Other fees None Tenor 20 years Grace period 5 Years EIRR (base case) 18.4%

Timeframe - Main Milestones (expected) Concept Note Approval May 2014 Project approval May 2015 Effectiveness September 2015 Completion December 2020 Last Disbursement December 2021 Last repayment October 2034

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Project Summary 1. PROJECT OVERVIEW: The Institutional and Sustainability Support to Urban Water Supply and Sanitation Service Delivery Project aims to improve water sector governance, strengthen institutional capacity and efficiency in the water and sanitation sector institutions at central and provincial level, and improve access to sustainable water supply and sanitation services. The Project will result in the empowerment of people through the capacity development and creation of employment directly within the utilities. The Project focuses in seven provinces of Angola namely: Cabinda, Cunene, Lunda Norte, Lunda Sul, Namibe, Bengo, and Cuanza Sul. Other provinces are being covered by other partners and GOA. 2. The Project’s main outcomes include (i) the establishment and effective functioning of seven Provincial Water Supply and Sanitation Utilities which are autonomous, (ii) enhanced capacity for service provision at the central and provincial levels, and (iii) expanded access to water supply and sanitation. The project is planned to be implemented over a 60 months period beginning January 2016 at a cost of US$ 154.71 million. 3. The Project will directly benefit a total population of 922 thousands immediately and indirectly (but gradually) all the 2.3 million urban population of the seven provinces through improved management and service delivery. The project will in particular increase access to water supply for an additional 338,000 people in peri urban areas of the provincial capitals and an additional 75,000 people having access to safe disposal of wastewater. The project will develop sector gender policy, strategy and action plan and will ensure empowerment of women through capacity development in training and employment generation through the management of water kiosks and fertiliser waste by-products. 4. NEEDS ASSESSMENT: Access stands at 54% for water supply and 60% for sanitation nationally as at 2012. The majority (85% or 6 out of the 7 provinces) of the Project beneficiary provinces have coverage below the national average (ranging from 7% to 56%) and hence there is a strong justification for the Project intervention in these provinces. Angola has been investing heavily on infrastructure after the end of the three decades of conflict and made progress in many areas including water supply and sanitation services. However, the investment in physical infrastructure has not been matched with adequate institutional and capacity emphasis. The lack of capacity and appropriate institutional mechanisms have negatively impacted the sustainability of the investment made so far. Service delivery is erratic and inefficient and highly subsidised with no cost recovery mechanisms in place. As a result of inefficient service delivery, the poor and vulnerable are the most affected in the peri-urban areas. Recognising these needs, the GoA through its National Strategic Program for Water (2013-2017) and the Energy and Water Action Plan (2013-2017) made an emphasis on the improvement of the sector governance (establishing a water regulator and asset management entity) and professionalising service delivery (establishing corporatized and autonomous utilities) along with critical investment to further expand access to services. 5. BANK’S ADDED VALUE: The African Development Bank intervention in this project will add significant value to the investment made by the GoA and other partners. Its holistic approach combining investment with developing capacity and strengthening institutions is its distinct character of focusing on development and sustainability. The synergetic value addition for reforms and capacity building through the recently approved Power Sector Reform Support Program is significantly high and builds the momentum positioning the Bank as the trusted partner. 6. KNOWLEDGE MANAGEMENT: The Project has significant knowledge building activities: technical assistance and studies aimed at developing strategies to address issues identified in the project will provide an analytical basis for future decision making. The inbuilt dialogue mechanisms through the Water Sector Institutional Development Commission (WSIDC) and annual urban water sector forums shall be instrumental in dissemination and utilisation of knowledge generated from the Project. iv

VII. Results Based Logical Framework Country and project name: Institutional and Sustainability Support to Urban Water Supply and Sanitation Service Delivery Purpose of the project: Improve sector governance, strengthen institutional capacity and efficiency in the water and sanitation sector institutions at central and provincial level and improve access and service delivery.

PERFORMANCE INDICATORS MEANS OF RESULTS CHAIN RISKS/ MITIGATION MEASURES VERIFICATION Indicator Baseline Target (including CSI) Contribute to equitable and Proportion of people with access to safe and clean water – 52% women1 54.02% (2012) 100% (2025) of AfDB/Annual Sector inclusive development which are report / Annual

through improved water 52% women Government report/ and sanitation service Annual JMP report delivery Proportion of people with access to improved sanitation – 52% women 60% 2(2012) 100% (2025) of which are IMPACT 52% women

Under age 5 mortality rate due to diarrheal disease 173/1000 (2012)3 108 (2025)

Outcome 1: Improved No. of autonomous functional provincial water and sanitation utilities 8 (2013) 15 (2020) Annual Sector

operational and Report/Project Proportion of O&M cost of water supply and sewerage facilities covered 20% (2012) >80% (2020) Risk: Reform in the institutional framework institutional efficiency in through revenue from charges progress

being slow. water and sanitation report/supervision Mitigation: Coordination and dialogue through service delivery reports the Institutional Development Commission and Outcome 2: increased Proportion of urban people with access to potable water supply – 52% 53%4% (2013) 85% (2020) Annual Sector capacity creation within DNA access in urban water women report/project 5 OUTCOMES supply and sanitation Proportion of urban people with improved sanitation - 52% women 85% (2013) 95% (2020) progress report services in the project

provinces No. of people with new WS access (50% women, disabled, vulnerable 0 338,000 (2020) 6 groups and people with special needs ) in peri urban of provincial capitals Risk: Resistance to change and relinquish Component 1: Development of Provincial Water Supply and Sanitation Utilities control at provincial level – confusion with the Autonomous water and No. of PWSUs established by law 0 (2013) 7 (2017) Project progress decentralization. sanitation utilities reports/supervision Mitigation: This risk will be mitigated through established reports stakeholder engagement, communication and change management. This aspect is supported Provincial water and Proportion of PWSUs with Cost recovery strategy and tariff for user charges 0(2013) 100% (2020) Project progress by component 3 of the project. sanitation utilities in place and effective reports/supervision operating optimally reports OUTPUTS Proportion of PWSUs staff trained (on job or through training centers), % 0 (2013) 75%, 40% of women women (2020) Proportion of PWSUs with integrated and disaggregated MIS and billing 0(2013) 100% (2020) system

1 Women form 52% of the population of Angola. 2 UNICEF and WHO Joint Monitoring Program 2014 Report 3 World Bank 4 UNICEF (Op-cit) 5 Ibid 6 The percentage is demonstrate the national effort for providing service to the vulnerable population.

Proportion of PWSUs with social charter7 (customer care, women, youth 0 (2013) 100% (2020) Risk: Weak cost recovery – people are used to involvement, vulnerable and those with special needs) free services in many places. Component 2: Sanitation and Water Infrastructure Mitigation: The project will carry out initial gender & social quintile beneficiary assessment Development of Sanitation Length of Sewer reticulation 0 (2013) 47km (2019) Project progress to determine willingness and affordability and facilities reports/supervision Capacity of sewage treatment created 0 (2013) 7500m3(2019) determine tariff and cost recovery plan. The reports / utility report social mobilization will also enhance residents’ Development of sanitation No. of coastal towns with sanitation investment plan 0 (2013) 9 (2019) awareness. guideline for coastal towns and investment plan Increase number of water no. of new connections 0 (2013) 37,100 (2019) supply connections to households No. of water kiosks managed by women established in peri urban areas 0 (2013) 140 (2019)

Strengthening capacity in Water quality monitoring centers developed 6 (2014) 9 (2019)

water quality monitoring

Component 3: Capacity Building and Change Management: Strengthening the Inter-ministerial coordination revived 0 (2014) Yes (2015) Annual sector report / institutional capacity of project progress Risk: Lack of capacity and skill to operate and MINEA, DNA, Water and Annual Sector report produced (including reporting on social inclusion) 0 (2014) Yes (2016) report / supervision maintain water and sewerage systems. Mitigation: The project will provide on the job Sanitation Training Centre System of supervision of PWSUs in place 0 (2014) Yes (2016 ) report and Women groups in the training through the technical assistance and Provincial Capitals Water Sector Gender Policy and Action Plan developed 0 (2014) Yes (2016) support to vocational training will be provided Women Kiosk operators trained on basic water kiosk management 0(2014) 140

Project Execution Capacity Gender and Social expert engaged at FCMU 0 (2014) yes (2015)

of DNA strengthened No. of staff of FCMU trained in core business areas, 40% women 0 (2014) 50 (2019) Project implementation manual developed 0 (2014) Yes (2015) Risk: Weak project implementation capacity Component 4: Project Management and highly centralized bureaucratic process Mitigation: The overall capacity of the FCMU Effective Project Project Delivered on time & within budget N/A Completed in 2020 PCR will be strengthened in critical functions such as Management Project Audited annually and submitted on time N/A Anuual Audit Report procurement and financial management including the preparation of a project Project Quarterly Progress Report Submitted on time N/A Quarterly QPPRs implementation manual to guide Project ESMP succesfuly implemented and reported quarterly N/A Quarterly QPPRs implementation.

ACTIVITIES The project activities include component 1 - Development of Provincial Water Supply and Sanitation Utilities: Key activities include initial assessment, preparation of legal ADB – US$ 123.77 million document, approval and provision of technical assistance (US$ 49.12 million); component 2 - Sanitation and Water Systems: key activities include construction of sewerage system GOA – US$ 30.94 million

and sewage treatment plant, carryout sanitation feasibility in coastal towns, connection to water system (US$ 80.18 million); component 3 - Capacity Building and Change Total –US$ 154.71 million Management: support reform program, undertake trainings, develop strategies and communicate, mobilize stakeholders and build capacity (US$ 15.95 million); and Component 4 – Additional GOA investment of US$ Project Management: carry out project planning, monitoring, control, procurement management, financial management, reporting and communication (US$ 9.46 million) 896 million for improving the water and sanitation facilities is taking place in the project beneficiary provinces.

7 The Gender and Social Charter for each utility will include measures to reach the poorest of the community.

PROJECT IMPLEMENTATION SCHEDULE

Activity 2015 2016 2017 2018 2019 2020 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 2 3 4 5 6 1 Loan Approval Loan Signature Loan Effectiveness First Disbursment Component 1 Support to the Establishment Process for utilities (TA1) Legal formation of the PSWUs Capacity building of Utilities Component 2 Sumbe design review, bid documents, tendering Construction of Sewerage works Coastal towns wastewater management study Provision of meters and access expansion Sumbe additional water distribution works Water quality monitoring infrastructure and equipment Component 3 Support for enhancing the sector reform Water Sector Institutional Development Commission Formed Support to DNA in the creation and utility supervision Strengthening of the FCMU under DNA Training and change management Communication Strategy and Action Plan Communication and awareness activities Component 4 Preparation of Project Implementation Manual Appointment of core project management staff Appointment of Project Auditor Project Management and monitoring and audit Project completion Project Disbursment Deadline - Dec 2021

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REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO ANGOLA FOR THE INSTITUTIONAL SUPPORT FOR THE SUSTAINABILITY OF URBAN WATER SUPPLY AND SANITATION SERVICE DELIVERY Management submits the following Report and Recommendation on a proposed ADB loan not exceeding US$ 123.77 million (estimated at UA 80.37 million) to finance the Institutional and Sustainability Support to Urban Water Supply and Sanitation Service Delivery Project in Angola.

I– STRATEGIC THRUST & RATIONALE 1.1. Project Linkages with Country Strategy and Objectives 1.1.1 Angola has made progress in all spheres of development and achieved a stable overall macroeconomic performance during the last few years using its rich endowments from natural resources with a clear break from long years of conflict which ended in 2002. Its long term development strategy, Vision 2025, outlines equitable and inclusive development and It envisions the achievement of universal water supply and sanitation services to its citizens prior to 2025. This project contributes to this Goal through its focus on service delivery.

1.1.2 Enshrining the Goals of the Vision 2025, the 2013-2017 National Development Plan (PND) focuses on eight key objecitves for development in the medium-term including addressing gender in its objectives by emphasizing the creation of economic, social, cultural and political conditions for women and families.. The pillars of the PND are (i) National Cohesion and Unity (ii) Democratic and Inclusive Society (iii) Human Development and Angolans Wellbeing (iv) Sustainable, Competitive and Equitable Development (v) Science, Technology and Innovation Development (vi) Private Sector and Entrepreneurship Development (vii) Development of National Territory in Harmonised manner, and (viii) Competitive Insertion of the Angolan Economy Globally and in the Region. Water and Sanitation sector is mainly anchored under the pillar “Human Development and Angolans Wellbeing” and GOA elaborated its specific sector investment framework and policy objectives through the National Strategic Program for Water 2013-2017 (NSPW). In an effort to translate and implement the provisions of the PND and NSPW, the GOA further prepared the Energy and Water Sector Action Plan 2013-2017 (Action Plan).

1.1.3 In the Action Plan aligned with the PND, the Government has set out its main objectives to be achieved by 2017 and these include: (a) deepen institutional reforms and improve the enabling environment for service delivery improvement, (b) expansion of access levels (water and sanitation) to up to 100% in urban areas and 80% in rural areas; (c) build a system of network for monitoring of water quality across the country; (d) guarantee the construction of small community water supply and sanitation systems in peri-urban and rural areas; and (e) ensure the integrated management of water resources. The achievement of these objectives will require investment in physical infrastructure as well as policy and sector reform measures to ensure long term sustainability and contribution of the sector to the overall economy. The Action Plan outlines a total budget of US$ 6 billion requirement for the water and sanitation component and this project forms part of it, contributing towards the achievement of the key objectives highlighted above.

1.1.4 The proposed project’s intervention forms part of the CSP (2011-2015) and is anchored in pillar 2 (economic infrastructure) with a significant contribution to pillar 1(stimulus to the competitiveness of the economy). Through the significant improvement in sector governance, quality of service delivery and long term sustainability, the proposed project contributes to the improvement of the competitiveness of the economy by providing reliable service. The investment in physical infrastructure will contribute to the pillar 2 – economic infrastructure development. 1

1.1.5 Furthermore, the project is aligned with the Bank’s Ten Years Strategy 2012-2022 through its contribution to the economic infrastructure development, skills and technology and private sector development. The project supports expansion of the water and sanitation infrastructure and builds capacity through skills and institutional development. The project’s focus on service delivery through improvement in governance and sustainability is well aligned with the objectives of inclusive growth by supporting skills development and job creation especially for women and youth and by prioritizing the specific needs in the underserved peri-urban areas. It additionally supports transition to green growth through enhanced wastewater management. Furthermore, the project is supported by the Bank’s Integrated Water Resource Management (2000) and Urban Development Strategy (2011). The project is also aligned with the Bank Gender Strategy, 2014 – 2018, as gender equality is an important aspect of Africa’s transition to green growth, the availability of clean and safe water will open new economic opportunities for women and men in addition to the direct permanent and temporary benefit from employment generation within the utiltities to be established and their associated services.

1.2. Rationale for Bank’s Involvement

1.2.1. Angola has made modest improvement during the last decade in access to water supply and sanitation services. Water supply improved from 42% in 1990 to 54% in 2012 disaggregated at 68% for urban and 34% for rural. Access to sanitation increased from 29% to 60%, disaggregated at 87% for urban and 20% for rural8. With the continued commitment and investment in the sector, access will dramatically increase in the next few years as pronounced in the Sector Action Plan. However sustaining the gains and improving service delivery would be a challenge without improvement in the governance of the sector. GOA has already started key institutional reforms for improving the enabling environment and professionalising service delivery with support from Development Partners (DPs) including the Bank. As enunciated in the Action Plan, GOA desires to scale up and deepen the reforms and requested the assistance of the Bank to contribute for the creation of utilities in seven provinces of Angola9 (Cabinda, Lunda Norte, Lunda Sul, Cuanza Sul, Bengo, Namibe and Cunene) with a total population of 4.1 million (20% of total Angola population) and strengthen the capacity and regulatory functions at the centre and provinces for improved quality of service delivery. The project will complement the investments being financed by DPs and GOA which is well over an estimated amount of US$896 million in the Project beneficiary provinces.

1.2.2. Furthermore, the GOA has requested the Bank to expand its investment in Sumbe town by including sanitation infrastructure and build on the ongoing intervention in the town which has seen improvement in water supply provision. The increased water supply in the town results in increased waste water and there is a need to develop wastewater management system for the town that are a source of employment and generate resources in form of energy, fertilisers and nutrient rich water for farming. The situation is more precarious owing to the topography and location of the town on the coast of the Atlantic. Several coastal towns suffer from similar problems and the project will also undertake studies on options of sustainable waste water management and sanitation services to inform future investments in sanitation in coastal towns.

8 WHO/UNICEF Joint Monitoring Report – Progress on Sanitation and Drinking Water 2014 update. 9 There are eight utilities established so far and the remaining outside this project are planned to be covered through the ongoing World Bank support. By the end of the project there will be responsible utilities in all provinces of Angola.

1.2.3. In light of the experience and expertise of the Bank and its commitment to support and assist RMCs, the GOA requested the Bank for assistance to scale up the efforts for strengthening the sustainability, institutional capacity and efficiency in service delivery and improve access to water supply and sanitation in Angola for improved economic, health and life of the people of Angola. In this regard the Bank would use its leverage and position to coordinate and collaborate closely with the DPs actively involved in the sector and cross synergise to lay the foundation for sustainable and efficient service delivery. 1.3. Donor Coordination

Size Sector or subsector* GDP Budget Labor Force Water and Sanitation N/A 2.5% NA Players – Water and Sanitation Public Annual Expenditure (2 yr average 2013 & 2014)** Government Donors UAm 1,096 37 % 96.7 3.3 Level of Donor Coordination Existence of Thematic Working Groups N Existence of SWAPs or Integrated Sector Approaches N ADB's Involvement in donors coordination*** None * as most appropriate ** Years [yy1 to yy2] *** for this sector or sub-sector 1.3.1. During the preparation of this project, the Bank has consulted key DPs active in the sector. Angola does not have formal coordination mechanisms in the sector. The volume of overseas development assistance flows into the country is limited to less than 3% of the national budget. The development partners active in the sector include the European Union (EU), Norway, World Bank, UNICEF, AfDB and bi-lateral creditors such as the Governments of China, Brazil, Germany and Spain.

1.3.2. The EU supports the institutional capacity development effort through a EUR 6 million program which largely focuses on human resource development and support to water quality monitoring. It is supporting the establishment of a water and sanitation training centre which is expected to begin its services in 2016. Norway is also supporting the institutional strengthening of the water and energy sectors, with greater emphasis for the energy sector. Its contribution to the water sector focuses on building capacity of the national institute of water resources and management of hydrometric networks and use of hydrologic data. The World Bank is providing its assistance through its water sector institutional development project supporting institutional reform for regulatory and asset management functions at central level and development of 9 Provincial Water and Sanitation Utilities (PWSUs) and complementary physical investment in infrastructure. UNICEF supports Angola in the area of policy and strategy and capacity building. It is currently working with government for the development of sanitation policy. The bi-lateral creditors resources are mainly channeled to investemnent for physical infrastruture. The Bank’s Angola Field Office (AOFO) is active in its dialogue and consultation between the GOA and DPs. Furthermore, the DPs mentioned above technically coordinate their activities through consultations and dialogue during their supervision missions or major events in the sector. The active DPs have been consulted in the preparation of this Project. The proposed Water Sector Institutional Commission and the Urban Water Sector Forums will stimulate sector coordination and provides a plateform for donors and government to work together. 3

II. PROJECT DESCRIPTION

2.1 Detailed Project Components

2.1.1 The project will contribute to the achievement of the country’s Vision 2025 objective of improved health and social wellbeing of the population through equitable, empowering women through capacity development and employment creation and inclusive development and universal access to improved water and sanitation services. The specific project development objective is to improve sector governance, strengthen institutional capacity and efficiency in the water and sanitation sector institutions at central and provincial level and improve access and service delivery. Table 2.1: Project components

Nr. Component Est. Component description name cost (million US$) 1 Development 49.12 (i) initial gender & social quintile beneficiary, technical and institutional of Provincial (39.29) including tariff & affordability assessment for the establishment of five Water Supply Provincial Water and Sanitation Utilities (PWSU) (ii) technical assistance and for 7 PWSUs and for management of these utilities including training of Sanitation staff, developing small towns management system, guidelines and Utilities procedures for various utility operations including social and gender charters (iii) developing the customer information and billing systems (Disaggregated by sex & social quintile) (iv) provision of Operation and Maintenance vehicles, tools and equipment and inputs, (v) independent performance audits 2. Sanitation 80.18 (a) Sumbe sewerage infrastructure (sewer system (47 km) and sewage and Water (64.15) treatment – 7500m3/d), (b) gender informed and inclusive hygiene Systems Promotion including sensitisation on Ebola prevention measure, (c) guidelines on appropriate technologies for wastewater treatment and reuse and feasibility studies for 9 coastal towns, (d) increase water connection to households (37,100), and provision of public standpipes (140) in the provincial capitals to benefit people in the peri urban areas, and (e) water quality laboratories (3) 3. Capacity 15.95 (a) support to enhance sector reform process and activities through Development (12.76) engaging an institutional and policy advisor, annual urban water sector and Change forum; strengthen M&E system, prepare annual sector report, and support Management to the regulator and asset management entity when established; (b) support in utilities supervision and monitoring; (c) strengthening the capacity of FCMU/DNA in procurement, financial, gender inclusion, monitoring and evaluation and project management; (d) training of staff of water and sanitation entities including exchange for peer learning; (e) Social mobilisation, and gender sensitive communication and awareness; development of gender policy and action plan. 4 Project 9.46 (a) support for recruitment of project management specialist, procuerment Management (7.57) expert, accountant; (b) development of project implementation manual; (c) support to project monitoring and supervision and operation costs; (d) project annual audits; 154.71 (123.77) Note: Figure in bracket is proposed Bank financing.

2.2 Technical Solution Retained and Other Alternatives Explored

2.2.1 The management of water and sanitation service delivery requires unique business approach that recognises the economic value of water, efficiency, cost recovery, sustainability, social and environmental importance. In addition, in the case of Angola the capacity of municipalities is inadequate and owing to the significant investment in improving the infrastructure asset, there is strong justification for the creation of provincial utilities that are autonomous, independent and accountable. This process of creating provincial utilities has already started through the ongoing Bank’s Sumbe Water Supply, Sanitation and Institutional Project and also through a project funded by the World Bank.

2.2.2 The Bank considered investment in both water and sanitation in the provinces to accompany the institutional transformation. However, the Government’s request was specifically for institutional support for 7 provinces and invesment in Sumbe town for sanitation. The Bank noted the large investment taking place in the provinces through financing by the GOA and other bi-lateral creditors such as China, Brazil, Spain and Germany. Due to this high current investment, it was critical to focus in the area of GOA’s request. The Sumbe sanitation was included in the project because the Bank is already providing assistance to improve the water supply situation in the town and there is strong need for saniation and wastewater management.

Table 2.2: Project alternatives considered and reasons for rejection

Alternative Brief Description Reasons for Rejection

Institutional Currently urban service delivery is The management of water and sanitation service Stregnthening of being provided through line delivery requires unique business approach that municipalities to run functions by municipalities or recognises the economic value of water, efficiency, water and sanitation town administrations or provincial cost recovery, sustainability, social and environmental service delivery as water and energy departments. importance. Fragmented approach would undermine one of their regular With further capacity building and the long term sustainaibility. In addition this option is functions structuring, improvement in against the current reform process in the sector service delivery could be achieved. Program covering Investment, institutional and This would make the project more complex. There is all provinces of capacity building in all the no Sector Wide Approach (SWAP) in Angola at the Angola provinces. moment. The sector organisations are under reform and there is a need for sufficient capacity created to coordinate and manage a SWAP type of operation. Furthermore. GoA’s request for the Bank was to extend its support in seven provinces. Sumbe town onsite Provide effective onsite sanitation This option was rejected because the solution is not sanitation systems management systems including long term as the city is expanding. provision of decentralised small communal systems.

2.3 Project Type

2.3.1 A project approach will be used as the sector governance and institutional framework is in transition and capacity for sector planning and programming need further strengthening. The Bank together with other donors will support gradual move to a sector wide approach at a later stage. This project supports the sector coordination, strengthening of the monitoring and evaluation and capacity development which will contribute to this end.

2.4 Project Cost and Financing Arrangements 2.4.1 The total cost of the Project for the components defined above is estimated at US$ 154.71 million, net of taxes and duties, of which US$ 94.52 million (62%) is in foreign currency and US$ 60.19 million (38%) in local costs. The table below provides a summary of the Project costs by component. These cost estimates are based on feasibility study conducted and also recent cost estimates for similar activities. The estimates include physical contingency of 10% and price contingence of 3% per annum. Table 2.3: Project cost estimates by component in million US$

Components Foreign Local Total Foreign % % Total 1. Development of Provincial Water Supply 29.37 11.29 40.66 72% 32% and Sanitation Utilities 2. Sanitation and Water Systems 36.50 29.87 66.37 55% 52% 3. Capacity Building and Change 9.24 3.96 13.20 70% 10% Management 4. Project Management 3.13 4.70 7.83 40% 6% Base Cost 78.24 49.82 128.06 62% 100% Physical Contingency 7.82 4.98 12.80 Price Contingency 8.46 5.39 13.85 Total Project Cost 94.52 60.19 154.710

2.4.2 The cost of the project will be financed by an ADB loan and GOA, as shown in Table 2.4 below. The Bank will finance US$ 123.77 million and GOA will contribute US$S30.94 million new resources as counter part contribution to the project activities. It is noted that the GOA is already investing US$ 896 million comprising of US$579 million by GOA and US$ 317 million from external sources in the water and sanitation sector in the project beneficiary provinces as elaborated in Appendix 5 and together with this project the overall contribution of the GOA will stand at 60%. The sustainability of the operations will be further enhanced by turning wastewater treatment into resource generating that will bring income to the utilities and a cleaner environment.Looking at the broader picture, Angola demonstrated its commitment to implement the overall development program of the country by investing significantly in the water sector.

Table 2.4: Sources of financing in million US$ Foreign Local Total % Total Source Currency Currency Amount ADB 94.52 29.25 123.77 80% GoA* 0 30.94 30.94 20% Total 94.52 60.19 154.71 100%

*GOA’s Amount excludes the current investment for water supply and sanitation in the project beneficiary provinces hich amounts at US$896 million.

Table 2.5: Project cost by category of expenditure in million US$

Foreign Currency Local Currency Category of Expenditure Cost Cost Total % Foreign A. Works 25.19 20.61 45.80 55% B. Goods 7.83 1.96 9.79 80% C. Services 34.96 14.98 49.94 70% D. Miscellaneous 10.26 9.46 19.72 52% E. Operating - 2.81 2.81 0% Total Base Costs 78.24 49.82 128.06 62% Physical Contingencies 7.82 4.98 12.80 Price Contingencies 8.46 5.39 13.85 Total Project Cost 94.52 60.19 154.71

Table 2.6: Expenditure by component and source in million US$

Component ADB GoA Total

32.53 8.13 40.66 1. Development of Provincial Water and Sanitation Utilities 2. Sanitation and Water Systems 53.10 13.27 66.37 3. Capacity Development and Change Management 10.56 2.64 13.20

4. Project Management 6.26 1.57 7.83 Total Base Costs 102.45 25.61 128.06 Physical Contingencies 10.24 2.56 12.80 Price Contingencies 11.08 2.77 13.85 Total Project Cost 123.77 30.94 154.71

Table 2.7: Expenditure schedule by component in million US$ Component 2016 2017 2018 2019 2020 Total 1. Development of Provincial Water 3.84 1.08 9.98 12.36 13.4 40.66 and Sanitation Utilities

2. Sanitation and Water Systems 4.73 26.81 21.27 10.33 3.23 66.37

3. Capacity Development and Change 1.5 2.79 3.27 3.02 2.62 13.2 Management 4. Project Management 1.5 1.4 1.4 1.4 2.13 7.83 Total Base Costs 11.57 32.08 35.92 27.11 21.38 128.06 Physical Contingencies 1.16 3.21 3.59 2.71 2.13 12.8 Price Contingencies 0.38 2.15 3.66 3.74 3.92 13.85 Total Project Cost 13.11 37.44 43.17 33.56 27.43 154.71

2.5 Project’s Target Area and Population 2.5.1 The project’s beneficiary provinces include Cabinda, Lunda Norte, Lunda Sul, Cuanza Sul, Bengo, Namibe and Cunene provinces with an overall population size of 4.1 million. Most of these provinces are on the bottom of the ladder in terms of water and sanitation access and other social services. The multiple survey result show that the majority (85% or 6 out of 7 provinces) are below the national average and as low as 7% access for water supply in Lunda Sul (Technical Annex B7.2).

2.5.2 The proposed project through the institutional development, capacity building, and water and sanitation infrastructure will directly benefit the population in the capitals of Cabinda, Lunda Norte, Lunda Sul, Cuanza Sul, Bengo, Namibe and Cunene provinces with total population of 0.922 million immediately and indirectly and gradually all the 2.3 million urban population of the provinces with main outcomes of improved and sustainable service delivery. women’s constitute about 52% (demographic, socio-economic, and health profile of the 7 provinces in Technical Annex B8.2). About 338,000 people in the provincial capitals who are marginalised from services and living in peri urban areas will gain new improved access. The sanitation infrastructure will impact directly Sumbe town and benefit about 75,000 people directly from better environmental sanitation systems which will impact sanition conditions in schools and improve school attendance of the girl child. It is also expected that more than 960 people (PWSU, DNA, DPEA staffs and women groups) will be trained on technical, financial, management and governance aspects with expected impact on the sustainability of service provision.

2.5.3 As a result of the project, the sector institutions at the central and provincial level will directly benefit from capacity building and change management component. They will be capacitated and strengthened to support the sector reform process and respond to the service delivery pathway improvement across the country.

2.6 Participatory Process for Project Identification, Design and Implementation

2.6.1 Extensive consultations with the relevant stakeholders; government ministries, line departments, provincial officials, development partners, NGOs and community groups, women and youths were held during the project identification, preparation and appraisal stages. Consultations were also held during the Environmental and Social Impact Assessment which was carried out for the wastewater treatment system under the initial Sumbe Water Supply, Sanitation and Insitutional Support Project. Furthermore, field visits to the project sites and beneficiary provinces were conducted with focused group discussions during the preparation and appraisal phases of the Project. The key issues emerging from the consultations are mainly focused around understanding the changes coming as a result of the project and also the need for inclusiveness and in particular people living in the peri urban areas and stakeholders participation in the project implementation process. The project design has incorporated these key issues in its components. Deliberate and specific provision has been made for expanding access in the peri urban areas with particular emphasis to women and vulnerable sections of the communities including disabled and older. Furthermore, the component on capacity development and change management has been specifically designed to mobilise stakeholders participation for the implementation of the project.

2.7 Bank Group Experience, Lessons Reflected in Project Design

2.7.1 Some of the key lessons learnt from the on-going projects under implementation in Angola as well as those supported by other donors’ are taken into account in the formulation and design of the project. The main lessons taken into account are:

(i) Weak capacity and complex decision making process – the project design included a strong capacity building and change management component to address the perceived weakness in this area. In particular the decision making process for utility formation need to be smooth and well coordinated and in this regard the project included the financing of an Institutional and Policy advisor to the sector along with the establishment of the Institutional Development Commission based on the lessons from the experience of the creation of eight utilities so far.

(ii) Lack of effective monitoring and evaluation mechanisms and weak project follow ups – this is a key generic weakness experienced as reported through the country portfolio review. The project included support for the strengthening of the sector monitoring and evaluation system and also strengthen the Executing Agency in the implementation of the project and meet the various monitoring and reporting obligations including those on service provision by the utilities which will be streamlined in the Regulator’s and Asset Management Agency’s (INAS) monitoring framework.

(iii) Weak coordination among state actors – the project recommended the resuscitation of a formal national coordination mechanism at the highest level supported by the reform advisor. In this regard an agreement has been reached to establish the Water Sector Institutional Development Commission with the Directorate of National Water as its secretariat and the convening of regular urban water sector forum. The project will extend support to these activities to strengthen sector coordination within the Government and with development partners.

(iv) Focus on strategic interventions with greater additionality and potential to enhance Bank’s visibility – the project’s focus on sustainability and efficiency has greater visibility and far reaching impact and consequences. The areas of intervention under the project are carefully selected and picked for Bank’s value addition to the ongoing effort by GOA and DPs.

(v) Utility formation is a process and requires greater technical assistance effort – the project included a two stage technical assistance. The initial stage focusing on the formation process while the second stage on capacity building leading to a well functioning and capacitated utilities.

(vi) Need for greater effort to enhance the mainstreaming of gender, environment and social concerns – special due attention will be provided to streamline these areas throughout the project implementation process. A social and gender expert with attendant skills has been included in the team to complement the existing environment experts in the Executing Agency. The project also includes the development of gender policy and action plan for the water sector, development of gender and social charter for the 7 utilities, integrating gender and social aspect in the different activities of the project aimed at empowering women and youths.

2.8 Key performance Indicators

2.8.1 The Result Based Matrix of the project reflects the performance indicators for the project at input, output and outcome levels. Key among them are :(i) at outcome level the number of operational autonomous utilities, number of people with access to water and improved sanitation; (ii) at output level measures of infrastructure provided, number of utilities gazetted, evidence of incremental capacity at provincial and central government level; number of people (% of women, youth) trained in managing water points and hygiene promotion, number of people (% of women, youth, disabled, older) reached for inclusive hygiene promotion. At the beginning of the project, the baseline (disaggregated by gender and social quintile) for all the indicators will be re-validated through the initial assessment to be conducted. Similarly, the project implementation schedule and procurement plan provide key indicators for monitoring implementation progress. These will be updated with actual status for evaluation with planned targets.

III – PROJECT FEASIBILITY

3.1 Economic performance

Table 3.1: Key Economic Figures EIRR 18.4% and NPV AON 5,033 million (at 12% base case) NB: detailed calculations are available in Annex B7

3.1.1 The economic analysis of the project has been undertaken by comparing “with project” and “without project” of the various costs and benefits that will accrue to the beneficiaries of improved water supply and sanitation services for the residents in the seven provincial capitals and surrounding areas. The project will support the formation of water and sanitation utilities, autonomous institutions to manage the water supply and sanitation services in their respective provincial towns for sustainable improved service delivery.

3.1.2 It will improve access to reliable and clean water supply and sanitation services which will promote environmental health. These will result in reduced water borne diseases for the populations living in urban and peri-urban areas of the seven participating provincial capitals. These will also enhance the quality of livelihood and well-being of the beneficiary population, and boost economic activities in the project area. The economic returns are measured in terms of benefits which accrue to residents in the form of clean, regular and adequate drinking water supply, improved sanitation services, improved health and living conditions of the beneficiary population.

3.1.3 The main assumptions are: Improved water system management including formation and functioning of water utilities, installation of meters and demand management will enhance operating efficiency in the delivery of water services. This would contribute to generate incremental water and sanitation revenues. Another major benefit is health benefit which accounts for the reduction in water borne diseases of population living in urban and peri-urban areas of the participating provinces, which results in savings in health expenditure. The costs side includes capital investments, periodic replacement costs, and incremental operating and maintenance costs. All costs and benefits are considered net of duties and taxes. In addition, the economic life of the investment is estimated at 25 years. The project’s economic rate of return is estimated at 18.4%. The value is higher than the opportunity cost of capital of 12% and thus the project is considered economically viable. Sensitivity analysis to test the robustness of the EIRR was carried out to determine the impact of adverse variations. The EIRR changes to 15.3% assuming that investment cost increases by 20%, and changes to 14.1% when the benefits of the project are decreased by 20%. The analysis shows that the project is economically viable and socially beneficial for Angola. Annex B7 shows the assumptions and the calculations of the EIRR.

3.2 Environmental and Social impacts

Environmental Impacts 3.2.1 The project was classified as Category 2 on 17th September 2014 mainly because the impacts are site specific which could be adequately mitigated and project has significant social, health and environmental benefits. The ESMP summary was prepared in July 2014 and disclosed on the Bank’s website on 28 October 2014 with a minimum of 30 days prior to Board approval.

3.2.2 The most significant benefit derived from this project will be well developed institutional capability for water and sanitation service delivery and a cleaner natural and living environment, and greatly improved health standards in the seven provinces targeted by this project (0.92 million people). This then has much broader implications in terms of better economic productivity, and it will contribute to boosting development, particularly in the tourism sector for which reliable water supply and sanitation facilities are essential.

3.2.3 The technical assistance components of the project strive to create capacity including those related to environmental management. The new utilities to be formed will be assisted to develop their environmental management plans, water quality monitoring plans, occupational health and safety plans, leakage monitoring plans, energy and chemical management etc. among others. Staff of the utilities, board members and other key staff of relevant institutions will be trained on various aspect of utility management which would greatly contribute to environmental awareness. Most of the training will be conducted by a network of local training providers through the coordination by the Onga Zanga technical training centre under establishement with support by development partners. Furthermore, in order to enhance the participation of communities and stakeholders and increase awareness, specific activities for communication, social mobilisation and hygiene promotion have been included in the project. These institutional technical assistance activities are mainly covered through Components 1 and 3 of the project activities.

3.2.4 The project will also enhance capacity within the DNA/ESUto ensure environmental and social impacts are avoided, mitigated or offset in all DNA/FCMUactivities, and enable more rigorous environmental and social monitoring of projects in the targeted provinces, during their construction and operation phases. The proposed laboratories to be established will enhance the provinces' ability to monitor water quality and water discharges, as well as wastewater discharges. 10

3.2.5 Under component 2 of the project, it is envisaged to support effort to expand access for water supply and sanitation. For water supply, this will be done through the support to the utilities to encourage more water supply connections from existing network capacity and benefit from the recent large investment in infrastructure in the provinces. No negative environmental impact is expected from this activity as it does not involve new network expansion. It will mainly benefit the people in particular the poor in the peri urban areas by providing access to potable water supply. For sanitation, the main focus is for Sumbe town which lies on the coast some 330 km south of Luanda, and has a population of 143,000 people . Here it is proposed to provide a sewerage system that would include a small wastewater treatment plant (WWTP).The Sumbe sanitation intervention was initially included in the ongoing Sumbe Water Supply, Sanitation and Institutional Development Project which is a category 2 project but its implementation was deferred due to lack of available funding. However, a detailed design and ESIA was prepared for the interventions under the project.

3.2.6 Following review of the design, the Bank recommended revision of the wastewater treatment to include a conventional WWTP with its effluent quality meeting Angolan standards appropriate for disposal into the sea. The major negative impacts associated with the system will be the disposal of sludge and backwash. But these will again turned into as a benefit through adequate treatment and use it as an input in agriculture. The only other major risk is that due to pipe ruptures. This can be minimised through proper design, careful supervision during construction and regular maintenance. Institutional, capacity building and technical support under this component will ensure that the system functions optimally, the quality of treated effluent eventually discharged to the sea is of acceptable quality and meeting the required standard, and sludge and backwash are treated appropriately and in line with international standards prior to disposal as an input for agriculture. Based on the demand and permissible topographical situation, the design of the plant would accommodate for the effluent to be fully or partially utilised for agriculture. The WWTP design would also accommodate energy production for consumption on the plant itself and this will reduce its reliance on external power.

3.2.7 Poor sanitation is a major environmental concern in Sumbe, both in the urban and peri-urban areas, and is the cause of numerous water-borne diseases, including cholera, malaria, typhoid and diarrhoea. The benefits derived from the intervention will be reduced levels of pollution from sewage on the land and in the sea, and therefore significantly improved health standards for the residents of Sumbe. Climate Change 3.2.8 Institutional capacity building in the DNA as well as in the water utility companies in the provinces will enable these agencies to better adapt to climate change, particularly in the planning of water supply and distribution and wastewater infrastructure. Four of the provinces (Cabinda, Bengo, Cuanza Sul and Namibe) are located on Angolan coastline, so the main concern with regard to climate change is the potential rise in sea level. No information with regard to sea level rise specifically for Angola is available, but the IPCC’s Fifth Assessment Report (2013)10 estimates that along the coast of Central Africa, an anticipated rise of 0.5 m to 0.6 m can be expected by the end of this century. The WWTP in Sumbe town would be located such that this risk is mitigated.

10Report available on https://www.ipcc.ch/report/ar5/wg1/

Gender

3.2.9 Women constitute 52% (8,468,911), of Angola’s 2009 estimated 16,367,879 population11. Angola ranks 92 out of 136 countries according to the 2013 World Economic Forum, Gender Gap Report, among the five lowest performing countries on the wage equality for similar work indicator but also part of the top six countries from the region that have closed their health and survival indicators. With 34.6% women MPs and 29% women in ministerial positions12 (2013); Angola has one of the highest women representation in public office. 31% (29% urban, 33% rural) of households are headed by women and constituted the majority of households living in extreme poverty13. School enrolment rates are relatively high and evenly distributed, especially in the cities. Women in secondary and tertiary education also tend to achieve higher grades than men, despite a more marked imbalance at the tertiary level, where the ratio of women to men is 65.5:100. However, at national level, literacy rates remain unequal, higher at 82.8% for men as opposed to 57% for women. Limited access to formal vocational training and higher education opportunities contribute to women's access to gainful employment, resulting in reduced income levels and strong presence in subsistence agriculture and informal trade where they remain the main income earners for their families making up 70% of the workforce. Gender division of labour in Angola reported that women work on average between 10 to 15 hours per day whilst men work for between 8 to 10 hours per day.

3.2.10 With women doing the most pressing house chores: cooking, cleaning and fetching water, as well as looking after the sick, old and children, the quality and availability of water and sanitation services is highly gender sensitive. As the main users of water; women have a greater incentive to keep water and sanitation facilities fairly functioning; thus justifying the need to involve the active participation of women in planning, management and decision making of projects designed to deliver water and sanitation services in their communities. The multiple roles of women play often subject them to crushing workloads leaving them with no time for other activities, worse is their exclusion from decision-making in the development of water and sanitation resources of their own communities. Reliable provision of the needed quantity and quality water will lessen women’s workload and facilitate their domestic, economic and social activities.

3.2.11 Against this background, the project included in its design to mainstream gender and address women’s need in the sector. The focus will be on (i) developing a sector gender policy and action plan which will promote gender mainstreaming in all activities, ii) reducing gender inequality by training women and sensitizing stakeholders and communities, and iii) training will also be provided in gender mainstreaming in water supply and sanitation at the peri-urban areas of the 7 Provincial capitals. Furthermore, women groups will be trained and supported to manage water kiosks in peri-urban areas of the provincial capitals. Women will also be trained in hygiene promotion to enable them play a leadership role.

3.2.12 The Executing Agency has no gender and/or social expert/s at the national and provincial levels. The sector has no Social or Gender policies and strategies to guide and inform the design and implementation of programs/projects. At national level, a gender analysis will be carried out as one of the first social / gender Technical Assistance (TA) activities to identify, qualify and quantify the specific

11 IBEP – Integrated Survey of Population Welfare Report 2011 12 MINFEMU Relatorio do Balanco de Execução do Plano Nacional – 2013 13 AfDB Multi-sectors Gender Profile 2008

gender needs and proposed benefits to inform setor policy development as well as the impact the project would have on women, men and youth. At provincial level, each Utility will be assisted to develop their gender/social policies and strategies and social charter. Women’s groups will be trained and supported in running water kiosks in peri-urban areas of the 7 provincial capitals.

Social

3.2.13 The 2013 Human Development Report (HDR) ranks Angola, 148th out of 187 countries on the Human Development Index (HDI). Poverty remains prevalent throughout much of the country. It is estimated that 37% of the population is living below the poverty line and 15% of households are living in extreme poverty with monthly consumption below the national poverty line of Kz4,973 ($2), the country’s poor are predominantly women, especially in the rural areas mostly in the FHHs. A significant proportion of the population uses drinking water from unsafe sources and the geographic disparity is very high. Open defecation is high at 26% according to JMP 2013 report; it ranges from 6% in Cabinda to as high as 70% in Namibe. Furthermore, the vulnerability of the Country is demonstrated by the persistence of epidemics like the water borne diseases outbreaks.14 Similarly in 2013, WHO reported that there were about 1215 cholera cases with no death in the record but in 2006/2007 more than 3092 related death and 82,204 cases were recorded. The underlying cause mainly due to 40-60%15 overcrowding and unsanitary conditions coupled with poor hygiene.16 Angola has a high rate of under 5 death, diseases related to diarrhoea and are responsible for nearly 19,700 child deaths a year.17

3.2.14 Although life expectancy at birth improved slightly to 51.7 years in 2011, health and social indicators remain worrying. Despite Angola’s economic progress, infant and U5MR mortality rates are among the highest in the world, at 179.5 deaths per 1,000 children and 260 deaths per 1,000 children respectively, poor sanitation and lack of access to clean water as contributing factors. Only 54% of the population has access to clean drinking water, with the figure dropping to 23% in rural areas. Coverage in 3 of the program’s provinces of Lunda Norte, Bengo and Lunda Sul is lower at 16%, 13% and 7% respectively18.

3.2.15 The program will undoubtedly have a positive impact on the population in the urban ad peri-urban areas in the 7 provinces. With minimal physical construction work in the provinces, no associated negative social impacts are invisaged. The program will strengthen the institutions to deliver better services. Access to clean and safe drinking water and improved sanitation will ensure sharp decline in diarrhoea and other water borne diseases and associated health care costs. There will be reduction in infant and U5MR rates, improvement of maternal health, reduction in absenteeism and school-dropout rates especially among girls, women and girls enjoy dignified sanitation, improved nutrition and dealing with water bourne diseases such as cholera, typhoid, gastroenteritis, dysentery; and water enabled diseases such as malaria. The hygiene promotion and education will also include creating awareness regarding Ebola. Employment opportunities will be created during construction and for pump attendants/repairers. The program will contribute to reducing poverty and improving the quality of lives of the people in the urban and peri-urban areas in the 7 intervening provinces. The project will also contribute to skill development in the sector through its support for on the job trainings and at the water

14 WHO Humanitarian Appeal 2009 Country Profile. 15 The Joint MISC/Household Incomes Expenditure Survey 2011 16 WHO, Global Task Force on Cholera Control, Cholera Country Prolife, Angola, Last update 22 January 2013 17 (WHO/ UNICEF, 2004). 18 The Joint MISC/Household Incomes Expenditure Survey 2011

and sanitation vocational centre. This is expected to greatly benefit the youth and increase their capacity to participate effectively in the sector (details analysis in Annex B.8).

Involuntary Resettlement 3.1.4 The institutional and capacity building aspects of theproject donot trigger involuntary resettlement. The MINEA/DNA Resettlement Framework Policy specifies that resettlement should only be done as a last resort, and if absolutely necessary must be done in compliance with the DNA Resettlement Policy and national legislation. The only activity in the project that has relevance to involuntary resettlement would be the Sumbe WWTP intervention under Component 2. There are two locations proposed for the WWTP which are uninhabited open spaces belonging to the GOA. Hence no resettlement is envisaged in this caseThe sewage reticulation network will follow the main roads, and will lie within the road reserves, so resettlement or compensation is not anticipated for this either.

IV – IMPLEMENTATION

4.1 Implementation Arrangements 4.1.1 The project will be executed in line with country’s sector organization with full recognition of the roles and responsibilities of the different water sector institutions. In this regard the Ministry of Energy and Water (MINEA) through DNA will be the Executing Agency of the Project responsible for project implementation and coordination activities including procurement and contract management, financial management, environmental, social and gender safeguards, monitoring implementation and coordinating the various activities among others. MINEA will use the existing project management unit within DNA known as the Financial and Contract Management Unit (FCMU) established to manage government and donors financed investment project and programs. DNA will be strengthened through technical assistance to produce a sector gender policy and action plan as well as develop gender mainstreaming and social equity strategies for the sector conducting gender assessment of the sector. The ongoing AfDB funded, Sumbe Water, Sanitation and Institutional Development Project, WB funded water sector institutional development project and other projects funded by treasury or bi-lateral credits are all implemented through FCMU. It remains within the operational responsibility of the Head of the Department of Water Supply and Sanitation within DNA with subsequent reporting to the National Director of DNA who in turn reports to the State Minister of MINEA.

4.1.2 In order to ensure high level coordination for supporting the reform process, DNA will be supported by the proposed Water Sector Institutional Development Commission (Comissão de Desenvolvimento Institucional do Sector de Águas). The Commission will be comprised of: (i) Minister/Secretary of State for Water; (ii) the National Director for Water; (iii) The Director of the National Institute for Water Resources Management (Instituto Nacional de Recursos Hídricos National or INARH); (iv) the Electricity Sector Regulatory Authority (Instituto Regulador do Sector de Energia or IRSE19) President; (v) The Head of Legal Affairs at MINEA; (vi) Ministry of Economic Development (MINECON); (vii) Ministry for Territory Administration (MAT); (viii) Ministry of Family and Women Promotion (MINFAMU); (iv) Ministry of Environment (MINAMB) and, (v) Ministry of Finance (MINFIN).

19 Currently, it is only responsible for the Energy Sector Regulatory, however the GOA intends to expand its mandate to cover both the water and energy sectors, allowing these to be regulated by the same authority.

Implementation Schedule 4.1.3 The project will be implemented over a period of 60 months from fulfilment of conditions for first disbursement in January 2016. Implementation of the capacity building components will begin from January 2016 and works will commence during the first quarter of 2016. Project completion date is set for December 2020. Procurement Arrangement 4.1.4 The National Procurement Procedures in Angola have been reviewed and were not found fully adequate for the implementation of project activities due to various reasons such as inherent risks of weak control mechanisms, lack of enabling tools and regulation documents to ensure fiduciary compliance. Therefore, all procurement of goods and works, and acquisition of consulting services financed by the Bank will be in accordance with the Bank's Rules and Procedures (“Rules and Procedures for Procurement of Goods and Works”, dated May 2008, revised in July 2012 and as amended from time to time and “Rules and Procedures for the Use of Consultants”, dated May 2008, revised in July 2012 and as amended from time to time) and the relevant Bank Standard Bidding Documents. 4.1.5 The Bank has carried out a procurement capacity and risk assessment of the Executing Agency and has been found moderately adequate while the procurement risk is rated moderate. Risks mitigation measures for strengthening procurement capacity of the executing agency include i) Recruitment of additional senior procurement officer and maintaining the existing Procurement Officer of the FCMU responsible for ongoing Bank project, ii) providing procurement training for the Procurement Officer, and iii) preparing a project implementation/Procedures Manual. 4.1.6 The procurement arrangements including the assessment of the executing agency, the draft procurement plan, an update of the national procurement procedures and the procurement package are detailed in the technical Annex B5. Financial Management and Audit Arrangements 4.1.7 The proposed project will be implemented by the National Directorate of Water (DNA) within the Ministry of Energy and Water. An assessment of DNA’s Financial and Contract Management Unit (FCMU) FM arrangements for the implementation of this project (that included a review of the budgeting, accounting, internal controls, flow of funds, financial reporting and auditing arrangements) indicates that these meet the Bank’s minimum requirements to ensure that the funds made available for project financing are used economically and efficiently and for the purpose intended. However, the following actions should be implemented on satisfactory manner to the Bank to establish an acceptable project control environment: (i) ensuring the existence of a dedicated project accountant with qualifications and experience acceptable to perform his/her duties, to be supported by an Assistant Accountant; (ii) the preparation of a project-specific financial management procedures manual as part of the Project Implementation Manual, (iii) purchase and installation of a conventional accounting software to record and process project’s financial transactions. The overall project FM responsibility rests with the project accountant, who will be supported by an assistant accountant, under supervision and guidance of the Financial Manager of at Financial and Contract Management Unit (FCMU). The appointment of the qualified and experienced Project Accountant is a condition for the first disbursement and the Assistant Accountant should be appointed within six months after the first disbursement. Disbursement Arrangements 4.1.8 Disbursement of the AfDB resources will be done in accordance with Bank’s procedures and the Disbursement Letter will document the disbursement procedures and methods to be applied for the Loan. Disbursement will be principally through the Direct Payment method (for works, goods and services), 15

however, the Special Account method will be used for smaller local eligible payment (training, workshops, and operating costs). The option for reimbursement methods will be also available for this project.

4.1.9 The Executing Agency will produce quarterly Progress Reports (within 30 days after the end of each quarter), including statement of sources and uses and funds and statement of use of funds by project component and activities, comparing budget and actual expenditures. These Progress Reports should link financial information with physical progress and highlighting issues that require attention. The project financial statements will be audited annually by the qualified and independent private audit firm, in accordance with a Bank approved audit ToR. The audit report together with management letter shall be submitted to Bank within six months after the end of each fiscal year. 4.2 Monitoring

4.2.1 The Executing Agency, DNA, will be responsible for the overall monitoring and supervision of the Project activities including ESMP implementation. It will produce monthly, quarterly and annual progress reports on the status of the various project activities, financial and procurement status, asset management, environment, social and gender safeguards, risks and mitigation measures. Once the project approaches substantial completion, a project completion report will be prepared by the Executing Agency that includes details of project implementation, financial, procurement, asset, safeguard, measures of the achievements of the project against the indicators in the log frame and lessons learnt. The lack of an adequate system of collection, processing and making available information in the sector is a major weakness and the project will build capacity in this regard. The activities undertaken under the sector M&E subcomponent will benefit the monitoring and evaluation of the Project in terms of data availability and quality, and M&E capacity in general. The project will support MINEA to produce an annual Sector Status Report and strengthen its internal M&E capacity.

4.2.2 The Bank shall also conduct regular project monitoring through supervision missions. The Executing Agency will present a consolidated biannual report to the Institutional Commission. The biannual/quarterly discussion of the project activities by the Commission and reporting of the Executing Agency to it is part of the project monitoring plan. A summary of the main milestones is presented below:

Table 4.1 – Key Project Milestones Timeframe Milestone Monitoring Process/feedback loop May. 2015 Board Loan Approval Sept. 2015 Signing and Effectiveness Loan signed and declared effective including precedent conditions for first disbursment by the Bank Sept. 2015 Launching Launching workshop organised Mar. 2016 Start of Sumbe Sewerage works Works Contract Signed, Monthly Supervision Reports Aug 2018 Completion of Sumbe Sewerage Works Commissioning of works June 2016 Annual Sector Report 1st Annual Sector Report for 2015 prepared June 2016 All Utilities formed Gazettes Issued Dec 2016 Utilities Management and Technical Contract concluded and effective Assistance commencement June 2017 Mid Term Review Comprehensive Review with Recommendations Dec. 2020 Completion of Project Project completion report

4.3 Governance 4.3.1 The overall governance rating of the country has improved overtime following the end of Angola’s civil conflict which damaged the institutions of governance and accountability. It made modest improvements over the years: the Mo Ibrahim Governance Index from 34 in 2006 to 44.5 in 2012; the

Bank’s CPIA score from 3.33 in 2010 to 3.96 in 2013 (Cluster A-C20), and Cluster D from 2.8 to 3.08 in 2013; the Transparency International CPI from 168th in 2011 to 153/178 countries surveyed in 2012; and the World Bank’s Worldwide Governance Indicators in four out of six dimensions of governance improved between 2000 and 2012, especially in political stability, and voice and accountability. However the country need to make tangible progress in the area of fighting corruption, removing inefficiency from the government bureaucracy and improving the overall business environment in the country.

4.3.2 In terms of water and sanitation sector governance, the country has embarked on a reform program to re-organise the sector, strengthen institutions and improve service delivery. The country is in the process of establishing autonomous and accountable utilities for delivery of water and sanitation services. In order to promote accountability, ensure sustainability and protect future investment and interest of the society at large, a process has been initiated to create a regulatory function merged with the existing electricity regulation institute (IRSE) and an asset management entity. A National Institute for Water Resources Management has already been established to strengthen the planning and management of water resources in the country. The reform is strongly supported as a top priority intervention in the Energy and Water Sector Action Plan (2013-2017). This project contributes to the improvement of the overall sector governance. 4.4 Sustainability 4.4.1 The commitment of the Government of Angola to sustainable service provision and leading the reform process with high sense of ownership is evidenced through a number of changes introduced in the sector following the end of the conflict in 2002. The national water law was approved in 2002 which introduced key reform elements such as the recognition of water as both a social and economic good and decentralised service delivery. Following the water law, a strategy in 2003 and a water sector development plan in 2004 were crafted. These initiated the massive investement in infrastructure in the whole country afterwards with a US$500 million per year investment. Taking into account the need for improvement in the service delivery pathway, the Government made a decision to use the country’s public enterprise law to professionalise the management of urban water supply and sanitation service delivery which is a key component of sustainability. The establishment of the water utilities, as autonomous entities, to take over the function of water supply and sanitation service provision will enhance sustainability as it will (i) uphold the principle of cost recovery, and ensure the proper use of the revenue for the sustained improvements in the quality of service delivery, and (ii) allow for the management of the facilities on sound business principles. Government is in the process of establishing regulator and asset management entity which will further reinforce accountability and efficiency improvement in the sector.

4.4.2 The long-term sustainability of sector institutions is a key objective of the on-going sector reforms, which seek to achieve, in the long term, cost recovery in service provision through user charges. As such, a review of the tariff regime and gradual tariff revision is critical to ensure that the water utilities can meet their revenue requirements from user charges, taking into account both the needs of the poor and the utilities’ financial sustainability. As part of the development of water utilities, the project will support tariff and affordability studies for each utility. These studies will review efficient cost of service provision, which also take into account the social nature and affordability of service provision to the poor. As part of the project, the newly established water utilities will be supported with the necessary key O&M assets to enhance proper operation and maintenance of facilities for sustainable service delivery. These

20 Cluster D looks at social context and human development including gender equality.

support will be provided as a stop gap measure on a declining scale to support gradual transition to adoption of cost recovery tariff in the project towns. After completion of the project, the utilities will start applying cost reflective tariffs, incorporating lifeline tariff, to cover at least operation and maintenance costs in line with the policy of GOA and reduce their dependence on Government subsidy.

4.4.3 Affordability of service has been a key consideration in the design of the project and choice of technology such that the majority of households falling within the poor strata of the population are not overburdened by high user charges. In this regard, water-vending kiosks, each serving between 100 and 200 households are included for the poor peri-urban settlements. These options are all demand driven and offer appropriate low cost solutions, bringing down operational costs within affordable levels for the peri- urban population. In addition, a social (lifeline) tariff will be put in place to allow for subsistence consumption up to cater for the needs of low-income households.

4.4.4 Technical sustainability of the project is assured through the extensive capacity building and skills development integrated in the project design to ensure effective and efficient management of the piped water and sewerage facilities. The project has also integrated social mobilisation as a key aspect of the project in order to mobilise support for the project and also maintain partnership with cunsumers which in the long term contributes to sustainability measures.

4.5 Risk management 4.5.1 The process of reform and institution formation is often a process facing resistance for change due to deeply entrenched interest and fear of outcome as well as lack of clarity and understanding by key stakeholders on the final desired objectives. These are inherent risks which need to be addressed carefully and systematically. The project embraced some key activities to address these risks through a structured and coordinated dialogue mechanisms and effective communication and engagement of stakeholders during the project implementation process at strategic and implementation levels.

4.5.2 Water supply is considered by many as a social service, and as such there is often strong pressure from various interest groups on government to keep tariffs low. There is therefore a risk of tariffs being kept low to the detriment of the utilities. The application of appropriate tariffs throughout the project horizon is essential to ensure that projected revenue requirements are met from user charges. As part of the project there will be sensitization campaigns and wide consultation with various interest groups from civil society, women’s groups, academia and political parties, to achieve broad consensus on project design and pricing implication. The capacity building and institutional support to the water utilities will include strengthening customer orientation and introduction of pro-poor supply strategy. The capacity of the utilities to carry out campaigns to encourage customers to pay for services will be built to mitigate a potential risk of resistance to user payments.

4.5.3 The weakness in the institutional capacity of the executing agency (DNA) could be a major risk in the implementation of the project, as well as in monitoring and evaluating the impact of the project. The overall capacity of the FCMU will be strengthened in critical functions such as procurement and financial management and a project implementation manual will be prepared to guide implementation of the project.

4.6 Knowledge Building 4.6.1 The implementation of the project components will generate vital knowledge that will be useful for continuous improvement of performance and execution of similar extension of water supply and sanitation services to the rural population living near a major water networks designed for bigger or main urban towns. A mechanism designed to capture knowledge has been put in place and data and information (gender and socially disaggregated) is collected on a regular basis on water schemes, access to water and sanitation services at local levels. As part of its support to the project, the Bank will finance in-depth analytical work to draw out lessons learnt from the implementation of the project, in particular the experience related to the use of community, specially women and private operators in rural water schemes. Knowledge will alse be drawn from the coastal sanitation studies. The knowledge gained will assist the sub-sector in achieving optimal exploitation of the water sources and support the Bank to replicate the good practice in other regional member countries. The project implementation review, quarterly progress reports, audit, sector M&E and completion reports will also provide information on various aspects of the project for further diagnosis. The knowledge obtained will be shared within the Bank and with other development partners as well as with RMCs.

V – LEGAL INSTRUMENTS AND AUTHORITY

5.1 Legal instrument 5.1.1 The Project will be financed by an ADB loan.

5.2 Conditions associated with Bank’s intervention A. Condition Precedent to Entry into Force of the Loan Agreement (i) The loan agreement shall enter into force subject to fulfilment by the Borrower of the provisions of Section 12.01 of the General Conditions Applicable to Loan Agreements and Guarantee Agreements of the ADB.

B. Conditions Precedent to First Disbursement of the Loan: The obligations of the Bank to make the first disbursement of the loan shall be conditional upon the entry into force of the loan agreement and the fulfillment by the Borrower, in form and substance satisfactory to the Bank, of the following conditions:

(i) Evidence of having opened a foreign currency special account for the deposit of the proceeds of the Loan and a sub-account in local currency with a bank acceptable to the Bank; (ii) Evidence of having appointed a Senior Project Management Specialist, Senior Procurement Specialist and Senior Project Accountant with qualifications and experience, and Terms of Reference acceptable to the Bank;

C. Other Conditions The Borrower shall, in form and substance satisfactory to the Bank, fulfill the following conditions: (i) Submit to the Bank an updated design, ESIA and ESMP reports and conduct proper consultations with the local communities on the project activities, specifically the planned waste water treatment plant and Sewerage network prior to disbursement for the Sumbe Sewerage Construction works activities; (ii) No later than six months after the first disbursement, cause the establishment of a Water Sector 19

Institutional Development Commission (Comissão de Desenvolvimento Institucional do Sector de Águas) to coordinate and lead the institutional reform in the sector; (iii)No later than six months after the first disbursement: (a) prepare a project implementation manual; and (b) engage an auditor with Terms of Reference acceptable to the Bank; (c) procurement and installation of automated accounting package; (d) appointment of assistant accountant with relevant experience and qualification based on terms of reference acceptable to the Bank; (iv) By 30th June 2016, cause the legal formation of the PWSUs and submit evidence thereof; and (v) If applicable, provide evidence that, prior to commencement of civil works on any given section, all Project Affected Persons (PAPs) in respect of such section of civil works have been compensated and/or resettled in accordance with the Abbreviated Resettlement Action Plan (ARAP), any updates to the ARAP, and the works and compensation schedule.

D. Undertakings The Borrower undeertakes and agrees, in form and substance satisfactory to the Bank, to (i) Cause the establishment of a water and sanitation service regulatory body and an Asset Management Entity; (ii) Guarantee the provision of adequate budget for the functioning of the PWSUs with a gradual phasing out of the subsidy; and (iii) Cause the preparation of the annual audit of the PWSUs by independent auditors and submit to DNA within 6 months of after the end of the fiscal year; (iv) Properly addressing all relevant environmental and social impacts and mitigation measures commensurate to those impacts; (v) Adequately addressing the current occupation of the road reserve in Sumbe, which if occupied, would trigger the AfDB Involuntary Resettlement Policy, in particular loss of economic activities on the part of the Project Affected People, leading to the preparation of an ARAP. (vi) If applicable, not start any works on any section of a given lot of civil works, if all Project Affected Persons on the concerned section have not been compensated and/or resettled with respect to the relevant section of the relevant lot in accordance with the ARAP and any updates to the ARAP as well as the works and compensation schedule; (vii) Carry out, and cause its contractors to carry out, the project in accordance with: (a) Bank’s rules and procedures; (b) national legislation; and (c) the recommendations, requirements and procedures set forth in the Environmental and Social Management Plan (ESMP) prepared for the project; and (viii) deliver to the Bank project quarterly reports in form and substance acceptable to the Bank, describing the Borrower’s implementation of the ESMP (including any implementation failures and related remedies, if any).

5.3 Compliance with Bank Policies This project complies with applicable Bank policies.

VI – RECOMMENDATION Management recommends that the Board of Directors of the Bank approve the proposed ADB loan US$123.77 million (estimated at UA 80.37 million) to the Republic of Angola for the purposes and subject to the conditions stipulated in this report.

APPENDIX 1: MAP OF ANGOLA AND PROJECT LOCATION

Project Beneficiary Provinces Sumbe Town

APPENDIX 2: ANGOLA’S COMPARATIVE SOCIO-ECONOMIC INDICATORS

Angola Comparative Socio-Economic Indicators Developing Developed Indicator Year Angola Africa Charts Countries Countries Basic Indicators GNI per Capita (US $) Area ('000 Km²) 1,246.7 30,046.4 80,976.0 54,658.4

Total Population (millions) 2014 22.1 1,136.5 5,628.5 1,068.7 6000 Urban Population (% of Total) 2014 61.5 40.6 44.8 77.7 5000 4000 Population Density (per Km²) 2012 15.7 35.4 66.6 23.1 3000 GNI per Capita (US $) 2013 5,170.0 1,969.6 2,780.3 39,688.1 2000 Labor Force Participation - Total (%) 2014 35.9 37.5 0.0 0.0 1000

2011 2012 2013 Labor Force Participation - Female (%) 2014 46.1 42.6 39.8 43.3 2010 Gender -Related Development Index Value 2005 0.4 0.5 .. 0.9

Human Develop. Index (Rank among 169 countries) 2012 148.0 ...... Angola Africa Popul. Living Below $ 1 a Day (% of Population) 2009 43.4 .. 25.0 ..

Demographic Indicators Population Growth Rate - Total (%) 2014 3.1 2.5 1.4 0.7 Population Growth Rate - Total (%) Population Growth Rate - Urban (%) 2014 4.3 3.4 2.4 1.0 3.5 Population < 15 years (%) 2014 47.3 40.8 29.2 17.7 Population >= 65 years (%) 2014 2.4 3.5 6.0 15.3 3 Dependency Ratio (%) 2014 91.0 77.3 52.8 .. 2.5 Sex Ratio (per 100 female) 2014 98.4 100.0 934.9 948.3 Female Population 15-49 years (% of total population) 2014 22.4 24.0 53.3 47.2 2

Life Expectancy at Birth - Total (years) 2014 52.3 59.6 65.7 79.8 1.5 Life Expectancy at Birth - Female (years) 2014 53.8 60.7 68.9 82.7 1 Crude Birth Rate (per 1,000) 2014 43.5 35.0 21.5 12.0 Crude Death Rate (per 1,000) 2014 13.6 10.2 8.2 8.3 0.5 Infant Mortality Rate (per 1,000) 2014 93.6 60.4 53.1 5.8

2012 2011 2013 2014 Child Mortality Rate (per 1,000) 2014 150.9 95.0 51.4 6.3 2010 Total Fertility Rate (per woman) 2014 5.8 4.6 2.7 1.8

Maternal Mortality Rate (per 100,000) 2010 450.0 415.3 440.0 10.0 Angola Africa Women Using Contraception (%) 2014 16.0 32.5 61.0 75.0

Health & Nutrition Indicators Physicians (per 100,000 people) 2004 8.0 52.6 77.0 287.0 Access to Safe Water (% of Population) Nurses (per 100,000 people)* 2004 135.0 .. 98.0 782.0 80 Births attended by Trained Health Personnel (%) 2007 47.3 .. 39.0 99.3 70 Access to Safe Water (% of Population) 2012 54.3 68.8 84.0 99.6 60 Access to Health Services (% of Population) 2000 24.0 65.2 80.0 100.0 50 Access to Sanitation (% of Population) 2012 60.1 39.4 54.6 99.8 40 Percent. of Adults (aged 15-49) Living with HIV/AIDS 2012 2.3 3.9 161.9 14.1 30 20 Incidence of Tuberculosis (per 100,000) 2012 316.0 223.6 .. .. 10 Child Immunization Against Tuberculosis (%) 2012 87.0 83.1 89.0 99.0

2011 2012 Child Immunization Against Measles (%) 2012 97.0 74.6 76.0 92.6 2010 Underweight Children (% of children under 5 years) 2007 15.6 .. 27.0 0.1

Daily Calorie Supply per Capita 2009 2,079.0 2,564.7 2,675.2 3,284.7 Angola Africa Public Expenditure on Health (as % of GDP) 2011 2.2 5.9 4.0 6.9

Education Indicators Gross Enrolment Ratio (%) ...... Secondary School - Total Primary School - Total 2011 140.5 101.8 106.0 101.5 Primary School - Female 2011 109.6 97.8 104.6 101.2 115 Secondary School - Total 2011 31.5 45.4 62.3 100.3 110 Secondary School - Female 2011 24.8 41.9 60.7 100.0 Primary School Female Teaching Staff (% of Total) 2011 36.8 43.7 .. .. 105 Adult Literacy Rate - Total (%) 2001 67.4 .. 19.0 .. Adult Literacy Rate - Male (%) 2001 54.2 ...... 100 Adult Literacy Rate - Female (%) 2001 82.9 ...... Percentage of GDP Spent on Education 2010 3.5 5.3 .. 5.4 95

Environmental Indicators

2010 2011 Land Use (Arable Land as % of Total Land Area) 2011 3.3 8.4 9.9 11.6 Annual Rate of Deforestation (%) 2000 0.2 0.6 0.4 -0.2

Annual Rate of Reforestation (%) ...... Angola Africa Per Capita CO2 Emissions (metric tons) 2011 1.3 1.1 .. ..

Sources : ADB Statistics Department Databases; World Bank: World Development Indicators Last update: March 2015 UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports. Note : n.a. : Not Applicable ; … : Data Not Available.

APPENDIX 3: TABLE OF ADB’S PORTFOLIO IN THE COUNTRY

Planned Status last Finance Approval project Dis. Division Long name of PFI STATUS Amount App. Amount Dis. supervision Window Project Age in YEARS project date completio Ratio Project Mission n date OSAN2 BOM JESUS -CALENGA RURAL DEV PROJECT P-AO-A00-001 OnGo NON PP / PPP 11/24/2005 12/312014 17,200,000.0 8,348,860.6 48.5 8/8/2014 [ ADF ] 8 years 11 months 0 days OSAN3 ANGOLA: FISHERY SECTOR SUPPORT PROJECT P-AO-AAF-002 APVD NON PP/NON PPP 5/15/2013 6/30/2019 20,000,000.0 0.0 0.0 [ ADF ] 1 years 5 months 9 days 37,200,000.0 OSAN3 ENVIRONMENTAL SECTOR SUPPORT PROJECT P-AO-CZ0-001 OnGo NON PP / NON PPP 3/11/2009 12/31/2015 12,000,000.0 4,233,631.9 35.3 3/16/2014 [ ADF ] 5 years 7 months 13 days 12,000,000.0 OSGE2 APPUI A LA GESTION FINANCIERE (PAGEF) P-AO-KF0-002 OnGo NON PP / NON PPP 11/14/2007 12/31/2014 5,900,000.0 690,063.7 11.7 12/9/2013 [ ADF ] 6 years 11 months 10 days 5,900,000.0 ONEC2 POWER SECTOR REFORM SUPPORT PROGRAM P-AO-FA0-002 APVD NON PP / NON PPP 5/13/2014 12/20/2016 666,782,242.3 0.0 0.0 [ ADB ] 0 years 5 months 11 days 666,782,242.3 OSHD1 CAPACITY BUILDING FOR POVERTY REDUCTION P-AO-IE0-001 OnGo NON PP / NON PPP 2/23/2011 12/31/2014 4,920,000.0 792,125.0 16.1 5/13/2013 [ ADF ] 3 years 8 months 1 days OSHD2 ETUDES FINANCEMENT ET SECTEUR PRIVÉ P-AO-IAD-001 APVD NO SUPERVISION 2/14/2014 12/31/2014 398,478.0 0.0 0.0 [ MIC ] 0 years 8 months 10 days 5,318,478.0 OITC2 NATIONAL TRANSPORT SECTOR MASTER PLAN P-AO-D00-003 APVD NON PP/NON PPP 9/17/2013 12/31/2016 2,900,000.0 0.0 0.0 5/6/2014 [ ADF ] 1 years 1 months 7 days 2,900,000.0 OWAS2 SUMBE WATER SUPPLY, SANITATION AND INSTI P-AO-E00-003 OnGo NON PP / PPP 11/28/2007 5/31/2015 12,000,000.0 3,207,688.4 26.7 2/24/2014 [ ADF ] 6 years 10 months 26 days 12,000,000.0 742,100,720.3 17,272,369.5 2.3 690,080,720.3 17,272,369.5 2.5

III

APPENDIX 4: SIMILAR PROJECTS FINANCED BY THE BANK AND OTHER DEVELOPMENT PARTNERS IN THE COUNTRY

Donor Sub-sectoral Focus Name of Project World Bank Urban Water Supply, Water Resources Water Sector Institutional Development Project EC Policy Water Sector Capacity Building Support – RWSS Establishment of Vocational Training Water Resources Centre

Norway Policy Institutional Strengthening of the Energy Water Resources and Water Resources Sectors in Angola

UNICEF POLICY Sector Policy Support – Sanitation Capcity building Support to Vocational training centre

AfDB Urban Water Supply Sumbe Water Supply, Sanitation and Institutional Development

APPENDIX 5: WAIVER REQUEST FOR FINANCING 80% OF THE PROJECT COST THROUGH AN AN ADB LOAN

Introduction

Angola emerged from more than 27 years of civil war to become Africa’s third largest economy, after Nigeria and South Africa. Since 2002, the country embarked on an ambitious infrastructure rehabilitation program for urban water systems. Despite these investments, Angola’s water utilities have been unable to cope with the burgeoning urbanization to the extent that about 40% of the urban population relies on largely untreated water supply by vendors, according to the Africa Infrastructure Country Diagnostic Report (AICD, 2011). The World Development Indicators (WDI, 2014) report also indicates that the country’s access to safe drinking water (54%) and sanitation (60%) remain below the regional standards. In addition, numerous challenges remain in the water and sanitation sub-sector in Angola. Many of them involve going beyond investment to strengthen and optimize the policy and the institutional environment for provision of quality services. Therefore, the proposed intervention constitutes a joining effort to assist the Government of Angola (GoA) in the implementation of its economic diversification strategy and poverty reduction. This project mainly targets to support sector reform to strengthen the water and sanitation service delivery and is critical for the success and sustainability of Angola’s infrastructure development in the sector which has seen large investment in the recent past following the end of the civil war.

In light of the above, the project should be granted a waiver in terms of the required 50% financing by GOA due to the high level of investment for the sector committed by the GOA. The country has already demonstrated high level of commitment through its various development programs and in particular for the water and sanitation sector with on-going activities estimated at US$ 896 million in the project beneficiary provinces. As highlighted in the “Policy on Expenditure for Bank Group Financing”, the country’s commitment should not only be measured by Government’s counterpart contribution but also by the ownership and commitment to the overall development program.

Country’s commitment to implement development reforms in the water and sanitation sector Despite the rapid economic growth over the past decade, the Angolan economy remains heavily dependent on oil which accounts for 47% of the GDP, 95% of the country’s exports and 75% of fiscal revenues. Notwithstanding the country’s significant oil wealth, income inequality remains high, with the top 10% of income earners concentrating one-third of total national income. Unemployment is also a challenge as it stands at 26%, and with poverty headcount ratio currently estimated at 37% of total population, of which 60% is in rural areas.

It is in this context that the government development in 2012, a National Development Plan (PND, 2013-2017), a long-term development strategy aimed at promoting human development and well-being of the Angolan population, ensure better living standards and reduce extreme poverty. The PND, 2013-2017 focus on six main objectives among which is the expansion and maintenance of the country’s infrastructure in order to improve competitive and promote

sustainable economic growth. Water and sanitation is among the key priorities for infrastructure investment as lack of access to treated water sources in Angola has been responsible for disastrous public health consequences, leaving the country with one of the highest rates of diarrheal disease in the world.

The National Development Program (PND) is the principal national development framework for the period 2013 – 2017 highlighting the country’s development challenges and priorities, investment framework and policy objectives. The PND is designed enshrining the national vision for 2025 and leading efforts towards its achievement. Water and Sanitation sector is mainly anchored through the Human Development pillar and further elaborated in the specific sector investment framework and the National Strategic Program for Water (NSPW 2013-2014) which further led to the preparation of the water component within the “Water and Energy Sector Action Plan 2013-17”.

In its Action Plan for the Water and Sanitation Component, the Government has set out its main objectives to be achieved by 2017 and these include: (a) expansion of access levels (water and sanitation) to up to 100% in urban areas and 80% in rural areas; (b) build a system of network for monitoring of water quality across the country; (c) guarantee the construction of small community water supply and sanitation systems in peri-urban and rural areas; and (d) ensure the integrated management of water resources.

Financial resources allocated to the sector The achievement of these objectives will require investment in physical infrastructure as well as policy and sector reform measures to ensure long term sustainability and contribution of the sector to the overall economy. In this regard, the Action Plan outlines a total budget of US$ 6 billion.

Despite the slight growth in terms of the national budget in absolute value from 69 billion in 2013 to 74 billion in 2014, the share of the water sector budget declined from 2.1 billion to 1.4 billion. According the authorities the decline is mainly due to the competition in the different sector for resource allocation and also the decline of the economic growth. The weakening of the budgetary allocation observed increases vulnerability of the sector in particular the institutional aspect due to the pressure for resource allocation to complete ongoing physical infrastructure projects.

The size of projects currently under implementation by the National Directorate of Water is estimated around US$ 3 billion and of this amount, about 896 million is being invested in the seven project beneficiary provinces in water and sanitation infrastructure development. The following table depicts the breakdown of the investment in the provinces.

Existing Commitment by Province21

Amount in million US$ S. No. Provinces Ext. Financers Government External Financing 1 Cabinda 200 2 Cunene 98 105 Spain 3 Lunda norte 6.7 China 48.1 4 Lunda sul 6.4 5 Namibe 100 98.6 China 6 Bengo 29 BPC 7 Cuanza Sul 186 18 AfDB Total 597.1 298.7 895.8

Country’s fiscal outlook and debt sustainability According to IMF projections, economic growth is projected to decline from 5.9% in 2013 to 3.9% in 2014, mainly due to a temporary decline in oil output and a deceleration in agriculture sector growth. The overall fiscal balance, in surplus in the last four years, is expected to deteriorate substantially in 2014, reaching a yearly deficit of around 4% of GDP on average between 2014 and 2019. After reaching a historic maximum level of USD36.1 billion in September 2013, gross international reserves declined to USD31.4 billion at end-June 2014. The falling oil commodity prices are expected to drive further decline on the country’s current account from 5.5% in 2013 to less than 2% in 2015. This will constraint the government’s ability to mobilize resources to fund large infrastructure projects. Given the budgetary constraints facing the country, most of its public expenditures have been redirected to infrastructure projects. This project is a critical step towards sustainability and reforming the sector to improve service delivery. In the medium-term, Angola’s oil revenues (as a share of GDP) are expected to decline while there is high demand for increased spending on infrastructure and poverty alleviation. This leaves the country in a challenging fiscal position characterized by large fiscal deficits over the medium term, leading to increasing gross financing needs and rising public debt-to-GDP ratios. Despite the challenging fiscal and external sector outlook, Angola’s external debt position appears sustainable, although it is expected to increase from 22% of GDP in 2013 to 37% of GDP in 2019. Moreover, total public debt is also expected to rise from 34.6% in 2014 to 45.6% by 2019.

Table 1: Angola’s debt sustainability indicators

Description

2010 2011 2012 2013 2014 External debt* 17.9 21.1 22.7 27.4 32.9 Domestic debt* 15.0 12.5 11.4 15.5 15.3 Total Public Debt-to-GDP (%) 39.8 32.2 29.6 34.6 36.6 External debt-to-exports (%) 35.3 31.0 31.8 39.6 48.6 Debt service as % of exports 9,6 2,4 8,5 4,4 6.5 Source : IMF Staff estimates, Present value, * : billion USD

21 The source is the DNA list of investment projects under execution (2014)

VII

Conclusion The GOA has demonstrated its commitment through its development program and spending in critical sectors such as infrastructure development in water and sanitation. However investment in physical infrastructure is not a sufficient condition for improved and sustainable service delivery. There is need for greater need for support in institutional strengthening and professionalizing service delivery which this project seeks to achieve. The commitment of the Government is evidenced as depicted in the figures above and the overall National Development Program. Owing to the importance of the project, current commitment levels and constraints in the national budget and future outlook, the project seeks a waiver from the Policy on Expenditure for Bank Group Financing requiring at least 50% counterpart contribution by the Government in line with the provision of the Paragraph 4.2.2 and the project be allowed with ADB financing of 80% of the project cost while the remaining 20% is covered by the GOA. Looking at the broader investment in the sector in the project provinces, Government contribution will stand at 60% while the balance is covered through external financing.

VIII