PD ASIAN DEVELOPMENT BANK RRP: MLD 33218

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

TO THE

REPUBLIC OF THE MALDIVES

FOR THE

REGIONAL DEVELOPMENT PROJECT, PHASE II –

ENVIRONMENTAL INFRASTRUCTURE AND MANAGEMENT

April 2005 CURRENCY EQUIVALENTS (as of 14 April 2005)

Currency Unit – rufiyaa (Rf)

Rf1.00 = $0.077 $1.00 = Rf12.96

ABBREVIATIONS

ADB – Asian Development Bank ADP – atoll development plan EIRR – economic internal rate of return GDP – gross domestic product IsDB – Islamic Development Bank IDC – island development committee IDP – island development plan IEE – initial environmental examination IS – international shopping MEC Ministry of Environment and Construction MHUDB – Maldives Housing and Urban Development Board MOAD – Ministry of Atolls Development MOFAMR – Ministry of Fisheries, Agriculture and Marine Resources MOFT – Ministry of Finance and Treasury MOH – Ministry of Health NPSC – national project steering committee MWSA – Maldives Water and Sanitation Authority O&M – operation and maintenance PHAST – Participatory Hygiene and Sanitation Transformation PIU – project implementation unit PMU – project management unit PPMS – project performance management system RPAC – regional project advisory committee TEAP – Tsunami Emergency Assistance Project UNDP – United Nations Development Programme UNICEF – United Nations Children’s Fund WDC – women’s development committee

GLOSSARY

Central Regions — Group of 13 atolls, part of the Maldives, between 1o and 6 oN, 72-74 oE. It comprises the South Central, Central, and North Central regions.

Community — The community-based approach to management of utility management services and facilities, including sanitation and sewage treatment and solid waste management.

Cooperative — Commercial enterprise owned and managed by and for the benefit of customers or workers.

Freshwater lens — Convex lens-shaped body of freshwater positioned above seawater, floating within the aquifer and separated from it by a transition zone. The freshwater lens contains the island’s freshwater reserves and is within the island’s shell and coral debris.

Focus islands — Selected regional growth centers where pilot environmental infrastructure and planning and environment management initiatives are to take place. In this Project, the islands are Naifaru in Lhaviyani Atoll, Mahibadhoo in Alif Dhaal Atoll and Fonadhoo in Laamu Atoll.

Regional growth — Regional urban growth centers, outside Malé and its centers immediate surroundings, where a wide range of employment and investment opportunities are to be created by building on economic, environmental, and social competitive advantages.

NOTES

(i) The fiscal year (FY) of the Government ends on 31 December.

(ii) In this report, "$" refers to US dollars.

This report was prepared by a team consisting of T. Gallego-Lizon and E. Mayerhofer (team leaders), M. Subroto, S. Zaidansyah, and H. Ikemoto. CONTENTS

Page

LOAN AND PROJECT SUMMARY iii MAPS vii I. THE PROPOSAL 1 II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1 A. Performance Indicators and Analysis 1 B. Analysis of Key Problems and Opportunities 2 III. THE PROPOSED PROJECT 5 A. Outcome 5 B. Components and Outputs 5 C. Special Features 10 D. Cost Estimates 11 E. Financing Plan 12 F. Implementation Arrangements 12 IV. PROJECT BENEFITS, IMPACTS, AND RISKS 16 A. Expected Project Benefits and Impacts 16 B. Assumptions and Risks 18 V. ASSURANCES 18 A. Specific Assurances 18 B. Conditions for Loan Effectiveness 20 C. Conditions for Loan Negotiation 20 VI. RECOMMENDATION 20 APPENDIXES 1. Design and Monitoring Framework 21 2. Institutional and Sector Analysis 25 3. External Assistance 30 4. General Approach to Community Organization 32 5. Gender Action Plan 34 6. Sanitation Improvements on the Focus Islands 35 7. Summary Initial Environmental Examination 38 8. Cost Estimates and Financing Plan 42 9. Implementation Schedule 45 10. Proposed Contract Packaging 46 11. Outline Terms of Reference for Consultants 47 12. Action Program and Performance Criteria for Regional Development 50 13. Summary Poverty Reduction and Social Strategy 51 14. Economic and Financial Analyses 55

SUPPLEMENTARY APPENDIXES (available on request) A. Detailed Cost Tables B. Detailed Terms of Reference for Consultants C. Analysis of Legal Framework D. Project Management E. Initial Environmental Examination

LOAN AND PROJECT SUMMARY

Borrower Republic of the Maldives

Classification Intervention: Targeted Intervention Sector: Water Supply, Sanitation and Waste Management Subsector: Integrated Theme: Environmental Sustainability, Sustainable Economic Growth Subtheme: Environmental Improvement, Developing Rural Areas

Environment Category B: An initial environmental examination (IEE) was Assessment undertaken. The summary IEE is in Appendix 7.

Project Description The Project was developed within the context of the Government's 6th National Development Plan, and focuses on poverty reduction; community development; and improvements in water supply, sanitation services, solid waste management, and land management. The Project combines the three principal thrusts of policy improvements, capacity building, and investment facilities. The Project will be implemented on three focus islands (Naifaru- Lhaviyani, Mahibadhoo-Alif Dhaal, and Fonadhoo-Laamu atolls). Naifaru and Fonadhoo islands were reported to have been highly impacted by the 2004 tsunami. The Project will help the Government deliver basic infrastructure services to the outer islands more efficiently through institutional reform, and will consolidate systems to recover costs and provide waste and sanitation management services. The Project has a strong community-based approach to implementation and will provide tangible support to optimize participation of the private sector by establishing cooperatives for operation and maintenance.

Rationale Poverty in the Maldives stems primarily from regional disparities in living conditions related to remoteness of the islands and lack of infrastructure and social services in the atolls. The island ecosystems are among the most vulnerable, and suffer rapid depletion and pollution of groundwater, pollution of the coastal environment due to inadequate sewage and solid waste disposal, and marine resource depletion. Environmental degradation can render an island uninhabitable, increase its vulnerability to natural disasters, and impact on key economic sectors, particularly tourism and fisheries. Problem analysis reveals that (i) basic infrastructure is largely inadequate on the outer islands to provide safe drinking water, and to prevent groundwater, marine and terrestrial pollution, and health hazards; (ii) regional planning is deficient due to the absence of implementing basic instruments such as land-use and economic planning, and environmental management for resource protection and health preservation; and (iii) management capacity at the regional, atoll, and island levels requires strengthening. iv

Objective The Project’s goal is to increase the standard of living in the Central Regions. The Project’s objective is to improve environmental and land management through a community- centered approach. The Project has three closely interrelated components: (i) improving environmental infrastructure; (ii) strengthening planning and environmental management; and (iii) building management and implementation capacity in the Central Regions.

Cost Estimates The total cost of the Project, including physical and price contingencies, is estimated at $7.5 million equivalent. Of the total cost, $5.38 million (71%) comprises the foreign exchange cost, and $2.12 million equivalent (29%) the local currency cost.

Financing Plan The Asian Development Bank (ADB) will provide a loan of $6 million equivalent from its Asian Development Fund resources. ADB will finance 80% of the costs, including the entire foreign exchange cost and 29% of the local currency cost. The Government and the beneficiaries will finance the remaining $1.5 million equivalent of local costs.

Loan Amount and Terms A loan of $6 million from the Asian Development Bank’s (ADB) Special Funds resources will be provided. The loan will have a term of 32 years, including a grace period of 8 years; an interest charge of 1.0% per annum during the grace period and 1.5% per annum thereafter; and such other terms and conditions set forth in the Loan Agreement. The Borrower will be the Government of Maldives.

Period of Utilization Until 31 March 2011

Estimated Project 30 September 2010 Completion Date

Implementation The project implementation period is 5 years. A project Arrangements management unit (PMU) under the Ministry of Atolls Development (MOAD) will be set up in Malé, and three project implementation units (PIUs) will be set up on each of the three project focus islands. A national project steering committee will be established to guide policy decisions and operational issues. A regional project advisory committee will be established on each of the focus islands to advise on atoll development coordination. Close coordination with units working on tsunami recovery will be sought.

Executing Agency Ministry of Finance and Treasury

v

Procurement Goods, related services, and civil works to be financed from the loan proceeds will be procured in accordance with Guidelines for Procurement by the ADB and its Borrowers and Government procurement procedures acceptable to ADB. Procurement will be carried out by the PIUs under the PMU’s guidance. The sanitation schemes will be integrated into combined design and supervision, and supply and construction packages for international competitive bidding. Equipment packages valued at $500,000 equivalent or less will be procured following international shopping procedures acceptable to ADB, and packages valued at $100,000 equivalent or less will be under direct purchasing procedures. Civil works contracts for the catchment rehabilitation under the rainwater tank component for values less than $15,000 equivalent will follow ADB's Guide on Community Participation in Procurement.

Consulting Services The Project will require 141 person-months’ consulting services (61 international, and 80 domestic). Consulting services are required to facilitate project implementation and to strengthen the institutional, administrative, and financial capacities of the PMU and PIUs. One consulting firm will provide services for the PMU and PIUs. The loan-financed consultants will be recruited in accordance with Guidelines on the Use of Consultants by the ADB and its Borrowers using a quality- and cost-based selection method and other arrangements satisfactory to ADB for the engagement of domestic consultants.

Project Benefits and The Project will directly benefit 9,500 people on the three focus Beneficiaries islands, raising the standard of living by providing basic needs. More than 20,000 people in the Lhaviyani, Alifu Dhaal, and Laamu atolls are expected to benefit from solid waste management improvements, and approximately 100,000 people in the central regional growth centers will benefit from improved planning and environmental management and improved institutional capacity to implement the regional development program. The proposed sanitation and sewerage improvements will significantly reduce pollution on the focus islands and their immediate surroundings, and will provide a proven mechanism for easy replication on other islands. Improved solid waste management will provide sustainable solid waste collection and disposal, and reduce coastal and marine pollution. A higher quality of life will result from better environmental management. These schemes will potentially enhance public health by reducing the risk of contracting diarrheal and waterborne diseases. Community participation will benefit vulnerable groups and allow women to be active in solid waste management. Poor households will be encouraged to participate as project beneficiaries. vi

Risks and Assumptions Skilled and experienced staff members are assumed to be available for project activities. The problem of having only a small number of skilled staff members in key Government agencies has been mitigated in project design through consultancies and training. Improvement of atoll administration requires that (i) all staff members trained under the Project will not be transferred to other institutions, (ii) collection and analysis of environmental data and drafting of land-use plans will be timely, and (iii) MOAD and PIUs will have the commitment, and receive the appropriate amount of resources, to carry out their mandate.

The Project assumes that, as agreed with the Government, a legal framework allowing cooperatives to exist as legal entities and to engage in multipurpose activities such as running of sanitation facilities will be accomplished before loan effectiveness. Government support will be required to ensure that island chiefs encourage the proper functioning of the community cooperative on their islands. Principal assumptions include a strong sense of ownership of and commitment to the Project, especially by the implementing agency.

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan to the Republic of the Maldives for the Regional Development Project, Phase II – Environmental Infrastructure and Management.1 The design and monitoring framework is in Appendix 1.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

2. The Maldives are a chain of 1,190 small low-lying coral islands grouped into 26 atolls in the Indian Ocean: 198 islands are inhabited, 80 house tourist resorts, and only 33 are over 1 square kilometer. The islands are predominantly coastal entities, and their ecosystems are among the most vulnerable in the world. The Maldives’s fragile coral reefs and coasts, which comprise the main source of livelihood in the atolls, need to be protected.

3. The Maldives have a narrow economic base that relies on two key sectors—tourism and fisheries. Economic growth has been strong since the 1990s; it was 8.5% in 2003. Although fisheries declined by 5% from 2002 levels, marine exports increased by over 35%, reflecting stronger export prices and larger volume and accounting for the overall increase in total exports in 2003. Aside from marine products, most of what is consumed in the country is imported. The combination of heavy reliance on tourism and fisheries, and high dependence on imports leaves the country highly vulnerable to external shock.2

4. Strong economic growth has resulted in improving development indicators. In 2002, life expectancy was 67.2 years, literacy 97.2%, and gross domestic product (GDP) per capita $4,798 (in purchasing power parity). Yet despite tremendous progress, a large proportion of the population remains poor, primarily due to regional disparities in living conditions related to remoteness of the islands and lack of infrastructure and social services on the outer islands.3

5. The Maldives suffers income and non-income poverty. Using Rf15 ($1.17) per capita per day as the threshold, the resulting poverty headcount in 1998 was 43%.4 Although a significant effort to reduce poverty had been undertaken by the Government over the past 6 years, the recently occurred tsunami disaster severely impacted more than 25,000 people or 10% of the Maldives total population.5 The overall picture does not show the high degree of regional income inequality. The concentration of the tourism industry and the Government administrative apparatus in Malé has led to a large and widening gap between the capital and the outer islands. An estimated 70% of the population outside Malé has incomes equivalent to only the least wealthy 20% in Malé. The ratio of incomes in Malé compared with the atolls is 2:1, increasing to 3:1 when the lowest average per capita income is considered. High degrees of inequality exist in social and physical infrastructure and services, estimated at 4:1 on average.

1 ADB. 2002. Technical Assistance to the Maldives for Preparing the Regional Development Phase II Project. Manila. 2 Weak economic expansion in 2001 and 2002 followed from adverse effects on tourism of the 11 September attack on New York City. 3 ADB. 2002. Poverty Reduction in the Maldives: Issues, Findings, and Approaches. Manila. 4 While the country has no official poverty line, a vulnerability and poverty assessment examined income poverty using different poverty lines (United Nations Development Programme and Ministry of Planning and National Development. 1998. Maldives: Vulnerability and Poverty Assessment. Published by Ministry of Planning and National Development and United Nations Development Programme, Malé). 5 ADB. 2005. Report and Recommendation to the President to the Board of Directors on a Proposed Loan to the Republic of the Maldives for the Tsunami Emergency Assistance Project. Manila. 2

The atolls have acute unemployment further affected by the recent disaster. Income sources are threatened by environmental degradation. Most people lack access to electricity, transport, communications, education, health, potable drinking water, recreation facilities, and selected consumer goods. Quality of housing and the natural environment is uneven. Food insecurity and malnutrition are widespread in the atolls. This is a challenge that the Government has sought to address since the 1970s, by undertaking a comprehensive program of regional development to open the entire archipelago to increased economic opportunities. Despite targeted Government efforts, marked regional disparities still exist.

6. Unique geography and vulnerability pose two key development challenges for the country. First, the dispersion of the population across the archipelago raises the cost of delivering social services, as economies of scale are difficult to achieve in service provision. Second, some inhabited islands have become ecologically vulnerable, while others have become too densely populated. The greater Malé area, already home to 70,000 people or almost a quarter of the population, is of specific concern. The continuing inward migration to Malé, in response to ecological vulnerability of the outer atolls, better job opportunities, and higher quality of social and public services, has severely increased population pressure in the region. A discussion of the institutional sector is in Appendix 2.

B. Analysis of Key Problems and Opportunities

7. As highlighted in the sixth National Development Plan,6 regional development is key to easing the development pressure on Malé as well as solving equity problems. Private sector activities, which would spur economic growth, have been limited in the atolls due to lack of basic infrastructure. While progress has been made in providing water and storage through rainwater tank programs on many islands in the Central Regions, investment in sanitation and solid waste management remains low and has sometimes been unsuccessful. This has resulted in deteriorating living conditions on many inhabited islands where the freshwater lens is at risk through groundwater pollution and high salinity levels. Pollution of the lagoons is widespread. These problems are particularly serious on densely populated islands such as Naifaru. The traditional approach to land management through land allocation has added a number of other fundamental environmental problems, including (i) inefficient use of scarce land resources, (ii) costly and overdesigned utilities and infrastructure, and (iii) badly located development that jeopardizes the conservation of freshwater and the marine environment.

8. Water Supply and Sanitation. Water on the outer islands is almost entirely supplied through a combination of groundwater extraction, mainly through domestic wells, and rainwater tanks, which are the principal source of drinking water. Increasing groundwater extraction levels, resulting from population and development pressures, are depleting the freshwater lens, a situation frequently exacerbated by the use of electric water pumps. This, in turn, leads to saline intrusion into the groundwater aquifer, thus restricting its resource value. As a result, individual household and communal rainwater tanks are increasingly needed as the principal source of drinking water. Communal tanks are necessary to provide water in times of drought and to meet the needs of families unable to afford or accommodate individual tanks. The situation was further exacerbated by the 2004 tsunami disaster which caused damage to the water lens in many islands. The recovery of the aquifer is uncertain as it is the period of time this will take.

6 The Government’s vision for promoting regional development is based on a diversified economy. This process involves a gradual shift toward a decentralized and service-based economy, which will result in job creation, improved services and infrastructure, development of human capital, and efficient institutional support 3

9. Groundwater resources are at risk of bacterial contamination caused by effluent leakage and pollutant migration from poorly constructed and maintained septic tanks and other disposal facilities. In high-density island environments, the construction and operation and maintenance (O&M) of septic tanks are complex, and a small-bore pipe network is a common alternative. These small-bore systems are generally not well designed, often malfunction, and usually convey raw sewage directly into the lagoon. Assets have deteriorated due to deferred maintenance, a situation aggravated by the Government’s necessary budget control measures. Government and community initiatives have not always been successful, and faulty systems are conducive to marine pollution. The Maldives Water and Sanitation Authority (MWSA), with Voluntary Service Overseas (VSO) assistance, has developed an environmental awareness program, used in selected atolls. However, resource constraints have prevented its widespread application.

10. Solid Waste Management. The outer islands have no formal waste management systems, except for two landfill sites7 and the central landfill facility of Thilafushi,8 serving Malé. Much of the waste material is not separated, and hazardous and toxic materials are deposited in garbage dumps. Dumps sites are not planned and designed as sustainable landfill sites, and are often close to houses and/or lagoons. Households deposit wastes randomly, and environmentally unsafe waste burning is common. Conventional approaches present a series of problems, including the need for substantial areas of land, which must be separate from residential and sensitive land-use areas. Marine pollution, particularly lagoon pollution, and long-term risks of groundwater through leachate drainage, will be a severe risk. Communities are becoming increasingly conscious of the need for environmentally sound management practices, and a number of individual island initiatives take a better approach to solid waste collection and disposal, but the country still has no comprehensive and sustainable approach to solid waste management. The need to expedite adequate practices and systems, and to organize the sector for efficient operation emerged to be particularly important in the aftermath of the tsunami.

11. Land Management. The traditional approach to land management on the outer islands (including the Central Regions) through land allocation has resulted in a number of fundamental environmental problems, particularly on inhabited islands. These problems include (i) inefficient use of scarce land resources, (ii) costly and overdesigned support utilities and infrastructure, (iii) badly located built development that jeopardizes conservation of groundwater aquifers and the coastal environment, and (iv) development of incompatible land-use facilities in close proximity. While policy, legislation, and environmental impacts have been extensively assessed, improperly considered development and inadequate monitoring and enforcement may lead to unsustainable development, such as garbage dumping in lagoons. The Government has taken land-use planning initiatives, including endorsement of preliminary planning guidelines for application at national level, and formulation of land-use plans for selected islands in the northern and southern regions.9 Further institutional strengthening is required to confirm the land-use planning process, provide a comprehensive planning framework and guidelines for use on the outer islands, and prepare land-use plans incorporating aspirations defined in the atoll and island development plans.

7 The landfill sites were developed under the ADB-supported project Regional Development Project, Phase I (ADB. 1999. Report and Recommendation to the President to the Board of Directors on a Proposed Loan to the Republic of the Maldives Regional Development Project. Manila), including the newly opened solid waste management facility at Kuludhuffushi. 8 According to the State of Environment report, more than 400 tons of waste is transported daily to Thilafushi (Ministry of Home Affairs and Environment. 2002. State of Environment, 2000. Maldives). 9 This was done in the context of the Regional Development Project, Phase I (footnote 7). 4

12. Governance. The form and nature of governance have been slow to reflect regional development initiatives and the needs and aspirations of beneficiary communities. The traditional “top down” sectoral approach of Government line agencies has sometimes resulted in inefficient project investment. Community participation has been inadequate, and private sector mobilization weak. Community organizations are traditionally important. Community groups provide most public or collective services available on distant islands. The demand for good- quality local government services such as public administration, judiciary, police, water, sanitation, electricity, communication has been rising with population expansion, higher incomes, and improved education. Providing such facilities and services to each inhabited island is, however, expensive, given the small populations. The Government is thus developing selected focus islands to serve as local government hubs for the atolls. The Government promotes community participation in delivery of public services to empower atoll communities and to increase accountability and ownership of the communities delivering the services. Wherever possible, the Government aims to concentrate the delivery of local public services to improve access, convenience of use, and efficiency of land use on the space-scarce focus islands.

13. Policy Dialogue. The Asian Development Bank (ADB) integrated policy dialogue with the Government is defined within the comprehensive National Development Framework and, complementing development programs, aims to help stimulate economic development and reduce poverty in a sustainable fashion through the following:

(i) Integrate (among sectors and governments, and spatially) and coordinate public programs by developing decentralized and multisectoral planning processes with participation of the poor, public-private partnerships, and monitoring and evaluation. (ii) Manage and conserve natural resources by continuing water quality and sanitation programs, coastal zone management, and land-use planning to target public infrastructure investments. Guide decentralized planning. (iii) Promote environmentally, socially, and economically sustainable activities that create jobs for the poor, by improving the access of the outer islands to infrastructure services, particularly energy, water and sanitation, and transport, and by scaling up and replicating sustainable development and poverty reduction paths regionally.

14. External Agency Coordination. ADB’s strategy will be implemented in an integrated fashion to complement leverage programs of, and coordinate with, existing partners, especially in areas of sustainable and integrated regional development, support to development of local participatory mechanisms, and environmental management. Aside from the Government, the main partners include the United Nations Development Programme (UNDP),10 World Bank, and Islamic Development Bank. During implementation and where applicable, activities will be coordinated. Other relevant past and ongoing external assistance in social infrastructure is listed in Appendix 3.

15. Lessons Learned. Lessons from ADB projects in the Maldives and in small island countries have been built into the Project. The Regional Phase Project, Phase I (foonote 6) is estimated to be completed by 31 December 2005. Phase II will benefit from the positive lessons, including, among others, the successful operation of revolving funds for rainwater

10 UNDP has led in introducing community-based mechanisms at island level, which assist in job creation, social development, and small-scale environmental improvements. 5 catchment. A review of phase I highlighted the need to (i) incorporate mechanisms to ensure that O&M are integral to the Project, (ii) incorporate integrated solid waste management programs to minimize waste production and maximize waste reuse and recycling benefits; and (iii) strengthen staffing in the regional offices. This Project will incorporate these findings, strengthen local coordination and management of services, and ensure that infrastructure is designed and implemented to meet local community needs. To avoid divergence between social infrastructure and community needs and aspirations, responsive mechanisms in project design and implementation must be established.

16. The most effective way to improve the service quality is to build on island solidarity and develop community ownership and accountability. Most line agencies have limited implementation capacity due to scarce skilled and experienced staff. Project implementation is delayed due to a lack of coordination between Government agencies, the initial phases of appointing consultants, and awarding of contracts. Implementation capacity and coordination must be strengthened, and long-term training provided for project staff in the relevant agencies as well as at the atoll and island levels.

17. Project implementation will be integrated to complement and provide leverage to other external programs and to support the development of community-based initiatives. The Project includes a number of features designed to support the Government’s 6th National Development Plan and ADB’s Poverty Reduction Partnership Agreement. These include consolidation and use of participatory mechanisms at the local level to ensure that the poor and vulnerable can participate and benefit. Interisland consortia and integrated monitoring and evaluation for all programs will be set up, local government management strengthened, and island development plans (IDPs) and atoll development plans (ADPs) prepared for each atoll.

III. THE PROPOSED PROJECT

A. Outcome

18. The Project seeks to promote regional development to support equitable access to social services and, therefore, relieve Malé of intense development population and environmental pressures. The project goal is to increase the standard of living in the Central Regions.11 The project objective is to improve environmental and land management through a community-centered approach. The Project includes a balance of institutional, infrastructure, and environmental improvements in the focus islands and their region. The Project will help safeguard public health and the environment, support community and private sector participation in waste management and sanitation, and increase public awareness of responsible environmental management practices. The Project combines policy improvement, capacity building, and investment in physical facilities.

B. Components and Outputs

19. To accomplish its objective, the Project has three closely interrelated components:

(i) Part A: Improving environmental infrastructure. This covers (a) sanitation and sewerage improvements,

11 The Central Regions were particularly affected by the 2004 tsunami. While this project will provide assistance to areas affected by the tsunami and therefore complement activities undertaken by the Maldives TEAP (footnote 5), the project aims to promote long-term development objectives, including institutional strengthening, policy dialogue, and environmental management. 6

(b) water supply, and (c) integrated solid waste management.

(ii) Part B: Strengthening planning and environmental management. This includes (a) land-use planning and management, (b) formulation of an economic development framework study for the regional growth centers, (c) developing an environmental awareness program, and (d) environmental monitoring.

(iii) Part C: Building management and implementation capacity. This covers (a) community mobilization facilitation, and (b) institutional strengthening for improved project management.

1. Part A: Improving Environmental Infrastructure

20. This component is geared to meet the needs and capacity of island communities and individual households. Its activities will be included in the IDPs and ADPs, and infrastructure will only be constructed once the land-use plans have been approved and the legal framework to establish utility cooperatives issued.

a. Sanitation and Sewage Treatment and Disposal

21. A settled sewerage system will be constructed under the Project for Mahibadhoo and Fonadhoo. The system is considered to be the most cost-effective and technically sound way to provide sustainable sanitation arrangements, as population densities are high; flow gradients are small; and the climate, which is warm with high humidity and seawater-laden winds, accelerates the corrosion of mechanical, electrical, and other susceptible equipment. The system can be easily replicated on most outer islands.12 Solid wastes are retained in household septic tanks13 while liquid wastes are discharged from tanks through small-bore sewers.

22. The Project will provide reed bed facilities14 to treat liquid waste leaving the septic tanks on the two selected islands. Reuse of treated effluent for agriculture will be the preferred option, if agricultural standards are achieved and demand is present.15 Recharging of the groundwater aquifer will be considered when the reed bed treatment achieves World Health Organization (WHO)-recommended concentration levels for groundwater. The Project will provide a deep-sea outlet for the effluent16 to be discharged through, if required. Provided septage areas will be suitably dried, stabilized, and sterilized. Sludge and vegetable matter will be composted with green waste and used to improve the soil. Detailed design for Naifaru17 will be undertaken. An O&M strategy will be developed for the sanitation and solid waste management components,18

12 The schemes are based upon 2020 populations and a sewage flow of 225 cubic meters per day. 13 Biological oxygen demand is reduced up to 60%, and suspended solids are virtually eliminated in the septic tanks. 14 Reed bed plants assimilate pollutants and enhance evaporation, reducing the pollutants in solution and suspension and the total amount of effluent. Fecal coliforms can be reduced by up to two orders of magnitude, and nitrogen greatly reduced over longer retention times. 15 Demand for agricultural-grade water is expected to be variable based on seasonal requirements. 16 The liquid effluent discharged to the sea will meet World Bank discharge standards. 17 Detailed design will be based on conventional or settled sewerage with reed bed treatment. 18 The O&M strategy will include detailed methodology for tariff structure, collection, and administration. Building from willingness-to-pay surveys and affordability data, user charges will be developed in a consultative and participatory manner, accounting for income disparities and focusing on cost recovery for O&M. 7 providing a solid foundation to collect user charges and administer the cooperative, ensuring the schemes’ financial sustainability. Communities will be trained to lead in O&M.

b. Water Supply

23. Water supply on the focus islands and across all the atolls in the Central Regions is deficient. The Project will support Ministry of Health (MOH) and UNDP like programs to provide individual and communal storage rainwater tanks and improve roofs and gutters, by including a rainwater collection financing component to help households purchase rainwater storage tanks19 and/or rehabilitate or improve rainwater harvesting equipment. Priority will be given to lower income households and those that do not own a rainwater tank. Financing facilities for the purchase of rainwater storage tanks and/or rainwater harvesting shall be provided at concessional interest rates, to cover exclusively administrative costs of the financial facility. Water catchment improvements, particularly on islands with reduced potable water during the dry season, will be maximized through the community awareness program for environmental management.

c. Integrated Solid Waste Management

24. The principal thrust of this subcomponent is to halt and reverse environmental degradation caused by inadequate solid waste management practices on the outer islands. The component will help achieve the long-term goals of safeguarding public health and the environment, supporting community and private-sector participation in waste management, and increasing public awareness of responsible waste management.

25. The Project will support policy development initiatives of the Ministry of Environment and Construction (MEC) by conducting a waste management study to formulate solid waste collection and disposal strategies at the atoll level, emphasizing the reuse and recycling of solid waste, and the potential to maximize commercial value of solid waste and minimize the need for landfill. The study’s results will be used to formulate a national solid waste management framework and serve as the basis to build physical infrastructure. The Project will provide solid waste management centers in Naifaru, Mohibadoo, and Fonadhoo-Gan. Most waste generated on the islands and atolls will either be reprocessed/stored for local use, or stored for transshipment in the solid waste management centers.20 The centers will optimize the potential for community involvement in O&M.

26. The Project will build capacity by developing and implementing public awareness and training campaigns to (i) establish and improve waste collection systems and cost recovery, and (ii) reduce waste generation and develop schemes for household composting at the island and atoll levels. MEC will lead in preparing and realizing the solid waste management awareness and training campaigns.21

19 This initiative was particularly successful among beneficiaries under the Regional Development Project, Phase I (footnote 7). 20 The solid waste management centers will receive segregated waste and manage it according to type: green and compostable material will be processed using vessel composting technology, recyclables will be bailed and transported to a central facility for sale, and inert residuals will be reused locally. 21 MEC will coordinate with other agencies active in the field of solid waste management and composting, such as the Ministry of Fisheries, Agriculture and Marine Resources (MOFAMR), to optimize this output’s delivery. 8

2. Part B: Strengthening Planning and Environmental Management

a. Land-Use Planning and Management

27. The Project will build and strengthen capacity in land surveying and land-use planning of key Government agencies such as the Maldives Housing and Urban Development Board (MHUDB) and Ministry of Atolls Development (MOAD), and atoll officials. Capacity building will be composed of (i) short-term training of local staff by an international consultant, focusing on formulation of land-use plans; and (ii) complementary overseas education, in the form of postgraduate degrees in town and country planning, to enhance overall capability for land use at the atoll level. This component will provide the resource capacity to implement and operate the planning guidelines,22 benefiting all atoll islands. This component will facilitate the preparation of 24 land-use plans for the regional growth centers identified in the Central Regions23 over 3 years. The land-use plans will be carried out in a participatory manner, reflect community needs and aspirations as defined in the IDPs and incorporate atoll-wide development objectives as defined in the ADPs.

b. Regional Economic Development

28. The Project will address constraints and opportunities for regional growth and economic development through a case study in economic development planning for regional growth centers. The study24 will prepare an economic development framework. The first phase, for Fonadhoo-Gan in Laamu Atoll, will present a comprehensive range of proposals for development and job-creating activities, together with supporting implementation arrangements and an investment program. The study will (i) identify economic development growth sectors and projects for improved livelihoods, (ii) assess skills development and training needs, (iii) evaluate and guide investment opportunities for microfinance and household-level development initiatives, and (iv) help vulnerable groups. The study will support Government policy and establish an approach to atoll economic development. Building on the study’s outcomes, studies for the Lhaviyani and Alif Dhaal Atolls will be undertaken. These can then be used as a model for other regions/atolls.

c. Environmental Awareness

29. The Project will develop and implement an environmental awareness, education, and outreach program for the selected regions, building on the experience of the jointly developed MWSA and the United Nations Children’s Fund (UNICEF), Participatory Hygiene and Sanitation Transformation (PHAST)25 to promote environmental awareness and hygiene. As part of the environmental awareness component, the Project will adopt the hygiene improvement framework and train and support island development committees (IDCs), women’s development committees (WDCs), and community leaders in planning, monitoring, and evaluating sanitation and hygiene improvement. The Project will incorporate gender-appropriate and user-friendly approaches for boys, girls, men, women, and out-of-school children. The Project will help

22 The Planning Guidelines for Land-Use Planning were approved by the President in March 2004. 23 A model land-use plan for Fonadhoo was prepared under the project preparatory technical assistance. 24 The study will coordinate with ongoing ADB assistance and the World Bank Integrated Human Development Project, and will build on findings from studies supported by other external agencies (2001, Strategic Economic Plan, Phase I, Government of Singapore; and 2004, Old, Exisiting and Potential Income Generation Activities in the Maldives, Published by Ministry of Atolls Development with the assistance of UNDP and the United Nations Economic and Social Commission for Asia and the Pacific, Malé). 25 The PHAST methodology centers around training of trainers, mostly teachers and extension trainers, who, using the same basic information and teaching media, transmit the message to the island population. 9 prepare an environmental awareness package, and associated supporting materials and manuals. If practical, a nongovernment organization (NGO) will help design and implement the awareness program.26 In the initial phase, the program will deliver training to Lhaviyani, Alif Dhaal, and Laamu atolls, followed by a second phase, covering the remaining atolls in the Central Regions.

d. Environmental Monitoring

30. The Project will include an environmental monitoring program to establish pattern and trends in groundwater quality and salinity levels. Initially, monitoring will be conducted on the focus islands, then, after staff training, on the remaining inhabited islands in the Central Regions. The Project will help prepare a study to obtain basic hydro-geological data to define appropriate minimum spacing between gray water and sewage facilities and domestic wells, and, therefore, prevent pollutant infiltration and groundwater contamination. Pollutant migration in the atoll aquifer will be investigated to guide on-site sanitation, reuse of gray water, and disposal of treated effluent as part of the sewage scheme.

3. Part C: Management and Implementation Capacity Building

a. Community Mobilization

31. The Project will review approaches to community organization for environmental management in the Maldives, refine a preferred approach in consultation with other international agencies, and detail project activities to organize communities for O&M of water utilities and solid waste management. In each region, the Project will train project implementation unit (PIU) staff, IDC and WDC members, and NGOs supporting community-based O&M activities. In the initial phase, priority will be given to communities on the three focus islands. Later, communities may be mobilized and organized on other islands where opportunities for community-based O&M of the utility and solid waste management sector are identified. After collecting baseline information on the communities, the Project will define a methodology for prioritization.27 Trained PIU staff and IDC and WDC members, assisted by consultants, will then activate community councils and structures for community-based management. Details are in Appendix 4.

b. Institutional Strengthening

32. Project implementation will require dedicated staff assigned by the Ministry of Finance and Treasury (MOFT), MOAD, and primary participating agencies (MWSA, MHUDB, and MEC). The Project will train and technically support the participating agencies to plan, manage, monitor, and evaluate the Project. Coordination and implementation capacity building will be provided to the project management unit (PMU) and PIUs. Capacity-building skills will include coordination, project monitoring and evaluation, technical and quality control procedures, financial management and reporting, management information systems, accounting, procurement, community mobilization, and social and environmental monitoring and planning. Assistance will also be given to providing administrative, financial, and technical skills required

26 In addition to the overall PHAST component, the environmental awareness curricula may include (i) rain and water resources management, (ii) vegetation and groundwater resources, (iii) pumping and salinity, (iv) water resources and sewerage, (vi) solid waste, (vii) lagoon and beach protection and/or (viii) beach erosion. MWSA will coordinate with agencies such as MEC in the finalization of the program. 27 Community organization activities implemented in three to five communities per year will comprise workshops, training of trainers, and networking. The criteria may include expressions of interest, commitment, and extent of environmental degradation. 10 to manage community cooperatives and/or private utility companies, where proposed. Specific training for O&M of utilities will be provided to PMU and PIU staff and communities. Technical training packages and manuals for this purpose will be prepared under the Project.

33. The Project will help MWSA PIU staff strengthen its capacity to implement the environmental management and awareness subcomponents and improve long-term resource capability.28 MHUDB as the planning authority and MEC (Environment Section) will benefit from capacity-building and training programs built into the Project.29 The programs should combine (i) short-term training for in-house staff and (ii) selected overseas higher education programs for concerned agencies. MOAD will submit for ADB's concurrence a 5-year strategic training plan within 3 months of fielding project management consultants and an annual training plan before 31 October of each year. The plan will specify training institutions, methodologies, targeted population, and expected outputs. In accordance with the gender action plan, 30% of trainees will be women (Appendix 5).

C. Special Features

1. Environmental Protection

34. By increasing drinking water, the Project will help protect the freshwater lens from overextraction, protect public health from potential waterborne contamination, and reduce the overall demands on the fragile aquifer, particularly affected after the December 2004 tsunami. The Project will include the installation of sanitation solutions,30 reducing potential groundwater contamination. The environmental monitoring program will provide a mechanism to evaluate any changes resulting from additional extraction for nonconsumptive purposes, or from contamination due to wastewater disposal. If changes are significant, then measures to protect the freshwater lens will be implemented. The solid waste collection and management program will help stop the uncontrolled disposal of garbage. Incorporation of source separation and recycling will help raise public awareness of the need for wise stewardship of the fragile atoll ecosystem. Community efforts to remove scattered waste from the islands and surrounding water will make them more visually appealing. A comprehensive land-use management plan for the area will help identify appropriate land uses, establish maximum densities, protect sensitive areas such as water catchment zones and wetlands, and disclose the islands’ carrying capacity.

35. An initial environmental examination (IEE) was conducted to identify potential project impacts. The environmental analysis focused on those impacts associated with improvements in sewage and sanitation systems, and solid waste management. The analysis focused on project elements that would enhance and protect the environment. The summary IEE is in Appendix 7. The conclusion was that an environmental impact assessment is not needed. Overall, the Project will improve the natural and human environment and reverse the negative impact on the dynamics of the atoll system and its ecology. The Project will improve management and develop scarce resources, such as freshwater, that reflect the islands’ carrying capacity.

28 MWSA has limited human resources. Staff experience, nevertheless, includes implementation of settled sewerage and sanitation programs (including the formulation of guidelines on construction and O&M of septic tanks) and pilot reed bed wastewater schemes. MEC, recently mandated to manage solid waste, may have limited experience in the field, but will be coordinating closely with MOFAMR, and specific agencies with experience in solid waste collection (in Malé) and composting. 29 Close coordination of the project requirements will take place with the on-going ADB Technical Assistance for Capacity Building for Regional Development. 30 Selection criteria for sanitation improvement on the islands are in Appendix 6. 11

2. Resource Management

36. The land-use planning and management component will significantly improve land management in the atolls by (i) providing a proper context for land allocation, (ii) providing a context for social mobilization and participation in land management, (iii) ensuring sustainable levels of development on inhabited islands, (iv) providing a context for the optimal and least-cost provision of utilities and other services, and (v) ensuring the conservation of environmentally sensitive areas such as freshwater aquifers and lagoons. The Project will complete land-use plans that reflect the carrying capacity of the islands’ natural systems, increase understanding of how to balance development with environmental protection, and provide the capacity for land- use planning. The Project will strengthen Government capacity to develop the regions, including support for an economic development framework for regional development centers. The project components will be designed for replication. Facilitating sustainable livelihoods through environmental improvement, and providing basic infrastructure and social services are required for regional development and poverty reduction.

D. Cost Estimates

37. The total project cost, including physical and price contingencies, is estimated at $7.5 million equivalent. Of the total cost, $5.38 million (71%) comprises the foreign exchange cost, and $2.12 million equivalent (29%) the local currency cost. The indicative project cost by expense category is summarized in Table 1. Details are in Appendix 8.

Table 1: Cost Estimates ($ ‘000)

Component Foreign Local Total Exchange Currency Cost A. Base Cost

1. Part A: Environmental Infrastructure 2.93 0.13 3.07 2. Part B: Planning and Environmental Management 0.40 0.08 0.48 3. Part C: Management and Implementation Capacity Building 1.37 0.99 2.35 Subtotal (A) 4.70 1.20 5.90

B. Contingencies 1. Physical Contingenciesa 0.39 0.10 0.49 2. Price Contingenciesb 0.09 0.03 0.12 Subtotal (B) 0.48 0.13 0.61

C. Taxes and Duties 0.00 0.79 0.79

D. Interest during Construction 0.20 0.20 0.20

Total 5.38 2.12 7.50

% 71 29 100 a Based on 8.3 % of civil works, equipment, vehicles, materials, consulting services, and project administration. b Price contingency estimated at an annual factor of 0.8% for foreign and local project costs. Source: Asian Development Bank estimates.

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E. Financing Plan

38. It is proposed that ADB provide a loan of $6 million equivalent from its Special Funds resources (Asian Development Fund). The Borrower will be the Republic of the Maldives. The loan will have a term of 32 years, including a grace period of 8 years, with an interest charge of 1.0% per year during the grace period and 1.5% per year during the remaining term, and such other terms and conditions as set forth in the Loan Agreement. ADB will finance 80% of the costs, including the entire foreign exchange cost and 29% of the local currency cost. The Government and the beneficiaries31 will finance the remaining $1.5 million equivalent of local cost. Interest during construction will be capitalized. Table 2 summarizes the proposed financing arrangements. Table 2: Financing Plan ($ ‘000)

Source Foreign Local Total Cost Exchange Currency % Asian Development Bank 5.38 0.62 6.00 80.0 Government 0.00 1.50 1.50 20.0 Total 5.38 2.12 7.50 100.0 Source: Asian Development Bank estimates.

F. Implementation Arrangements

1. Project Management

39. MOFT will be the Project's Executing Agency, and MOAD, the Implementing Agency. A national project steering committee (NPSC) will be established to oversee the Project, and will consist of senior-level representatives from MOFT; MOAD; Ministry of Planning and National Development; MOH; MEC; MHUDB; Ministry of Gender, Family Development and Social Security; at the director level or above, and representatives of the atolls. The NPSC will be chaired by the deputy minister of MOAD; the deputy director general of MOAD will be the secretary. The NPSC will advise and guide the Project on policy decisions and operations. The NSPC will hold its first meeting within 3 months of loan effectiveness and meet quarterly. A regional project advisory committee (RPAC) will be established on each focus island to advise on atoll development coordination. The RPAC shall consist of representatives from IDC, WDC, island office, PIU and as applicable, the local NGOs and chaired by a senior officer to be appointed by the Minister of Atolls Development. MOAD will set up a PMU, led by a full-time project director with adequate sector-related and managerial experience, and communication skills. The project director will be charged exclusively with the Project’s execution and will have no other duties within MOAD. A core team of staff members from MOAD (deputy project director, financial and accounting manager, social development specialist); MOH (environmental engineer); and MHUDB (land-use planner) will assist the PD. Supported by the PMU, the project director will be responsible for (i) coordinating all activities under the Project; (ii) liaising and reporting to ADB; (iii) managing the PMU account; (iv) managing finances and reporting project accounts; (iv) liaising with other government agencies; (v) developing training materials, policy manuals, and technical guidelines; (vi) monitoring and evaluating PIUs; and (vi) giving management and policy support to the PIUs.

31 Beneficiaries’ contribution will be mostly in kind, covering labor costs for civil works. 13

40. The PMU will (i) prepare the overall project implementation plan and consolidated annual work plan, (ii) help the PIUs implement island and atoll development plans, (iii) supervise all project management activities, (iv) organize monitoring and evaluation activities, (v) supervise the implementation of the gender action plan and other activities under the summary poverty reduction and social strategy, and (vi) prepare overall progress reports and the project completion report.

41. Each focus island will have a PIU, with three sections: (i) environment and sanitation, (ii) governance and social development, and (iii) planning. Qualified staff will head each section. The PIU will be headed by a project manager working from the region, with suitable qualifications and good managerial and communication skills. ADB endorsement will be sought. The PIUs will employ full-time at least one accountant, one sanitation and environmental technical expert, and one social development specialist for the duration of the Project; and one land-use planner for at least the first 3 years of project implementation. Depending on the size of the region and the workload, additional technical staff may be deputed from line agencies and ministries, thus transfer skills and technology to the regions and improve capability. The PIU will be active in developing the structure of the regional development management office and contribute to the technical and regional development functions.

42. The PIU will help the Project (i) prepare the island and atoll development plans concurrently with the required land-use plan, (ii) mobilize communities, (iii) coordinate between the Project and community, (iv) tender works and services for project subcomponents, (v) implement construction works, (vi) implement the gender action plan, (vii) account for expenditures, (viii) monitor and report on project activities, and (ix) prepare project progress reports. PIU staff will be trained at the beginning of the Project in civil works, sanitation, solid waste management, planning, and regular project administrative responsibilities. Each PIU will have an accounting section, directly under the project manager, to deal with procedural aspects and recording of financial transactions and to prepare liquidation of statements and replenishment requests to the PMU.

43. The PMU and PIUs will be supported by a team of consultants headed by a project advisor and team leader and deputy team leader.32 Other consultants supporting the Project will include a financial management and procurement specialist, a monitoring and evaluation specialist, a land-use planner, and a social development specialist. Detailed training requirements will be assessed at the beginning of the Project, providing staff from the PMU, PIUs, atolls, islands, MOAD, MHUDB, and MOFT, and other stakeholders with timely training opportunities at the atoll, regional, and national levels.

2. Implementation Period

44. The Project will be implemented over 5 years. Implementation is expected to commence in the fourth quarter of 2005. Start-up activities will include the establishment of the national and regional steering committees, recruitment of project staff and consultants, preparation of the training assessment, conducting feasibility studies, and procurement of immediately required equipment. Physical works may not start until the first quarter of 2007 due to the need to draw up land-use plans for approval and to prepare detailed engineering designs and contract documents. The project implementation schedule is in Appendix 9.

32 The team leader (international) and deputy team leader (domestic) will be environmental engineers. 14

3. Procurement

45. Procurement will generally be carried out by the PIUs under the PMU’s guidance. Goods and related services, and civil works to be financed from loan proceeds will be procured in accordance with Guidelines for Procurement under Asian Development Bank Loans and the Government’s procurement procedures acceptable to ADB. The sanitation schemes will be integrated into a combined design and supervision, and supply and construction packages for international competitive bidding. Equipment packages valued at $500,000 equivalent or less will be procured following international shopping procedures acceptable to ADB and packages valued at $100,000 equivalent or less will be under direct purchasing procedures. Civil works contracts for the catchment rehabilitation under the rainwater tank component will be small, with an average value in the range of $10,000 to $15,000 equivalent, and will follow ADB's Guide on Community Participation in Procurement. The first contract of this type within each of the Northern Central, Central Region and Southern Central Region will be subject to ADB‘s approval. The proposed procurement packages are in Appendix 10.

4. Consulting Services

46. An estimated 141 person-months (61 international, 80 domestic) of consulting services are needed. Consulting services are required to facilitate project implementation and to strengthen institutional, administrative, and financial capacities of the PMU and PIUs. Loan- financed consultants for the PMU and PIUs will be engaged through an international consulting firm in accordance with Guidelines on the Use of Consultants by Asian Development Bank and Its Borrowers, using a quality- and cost-based selection method and other arrangements satisfactory to ADB for the engagement of domestic consultants. The proposed outline terms of reference are in Appendix 11.

5. Disbursement Arrangements

47. The PMU will prepare disbursement projections, request budgetary allocations for counterpart funds, collect supporting documents, and prepare withdrawal applications and send them to ADB in accordance with its Loan Disbursement Handbook. To facilitate the timely release of loan proceeds and counterpart funds and to expedite project implementation, the Government will, immediately after loan effectiveness, open and maintain a project imprest account with the Maldives Monetary Authority, to be managed by the PMU. The total advances to the imprest account, including the initial advance, will not at any time exceed estimated ADB- financed expenditures for the next 6 months or 10% of the loan amount, whichever is lower. To facilitate project implementation and support the environmental infrastructure component, three second-generation imprest accounts for each of the PIUs will be established at a commercial bank. The initial ceiling of the second-generation imprest account will be $20,000 equivalent, or the estimated ADB-financed expenditures in each PIU in the next 6 months, whichever is lower. Because the PIUs have limited experience with implementing externally financed investment projects, the second-generation imprest accounts will be established only after the fielding of the project-financed financial management consultant. The PMU will ensure that all imprest accounts will be established, managed, replenished, and liquidated in accordance with ADB’s Loan Disbursement Handbook, and with detailed arrangements agreed to by the Government and ADB. ADB’s statement of expenditures procedures, applicable to individual payments of $100,000 or less, will be used to liquidate advances from the imprest accounts.

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6. Accounting, Auditing, and Reporting

48. The Government will provide ADB with detailed quarterly progress reports on project implementation, following ADB standard procedures. The PMU will obtain and consolidate relevant data from the PIUs, which will prepare project operating accounts and related financial statements, and records of the statement of expenditure. Auditors acceptable to ADB will audit the imprest account, second-generation imprest accounts, and statement of expenditures. The final audit report will include a separate audit opinion on these. The PIUs will agree to have their project operating accounts audited by the PMU before receiving any funding through the Project. Audited financial statements and project accounts, together with the auditor’s report, will be submitted within 6 months of the close of the financial year. The PMU will submit to ADB, within 3 months of the physical completion of the Project, a project completion report following standard ADB procedures. The PMU and PIUs will have an adequate number of suitably qualified accounting staff, including a senior officer.

7. Project Performance Monitoring and Evaluation

49. To ensure that project components are managed efficiently and that project benefits are maximized, a project performance management system (PPMS) has been developed. It will monitor and evaluate project information and data to ensure that planned interventions achieve the desired result and benefit the target population. The PPMS will establish a cause-and-effect relationship between the Project and its impact. PPMS activities will be conducted periodically to gather information from multiple sources to determine whether the input deliveries for implementing project activities have rendered expected benefits to the intended beneficiaries. Beneficiaries will be involved in project monitoring evaluation, through direct reporting to PIU and through the regional project advisory committees to be established for coordination and monitoring. The PPMS also seeks to detect any deficiencies and discrepancies between the project plan and execution in using resources efficiently so that timely corrections can be made to update the Project and thus improve its benefits, outcomes, and impact. The indicators to be monitored will have been formulated and agreed upon with MOFT, including indicators pertaining to physical progress and institutional reform activities. The monitoring process will focus on, but not limit itself to, capacity building and O&M. The PMU will gather baseline physical and socioeconomic data in each atoll and submit a detail implementation plan for monitoring performance and prepare benchmark information for ADB’s review and concurrence within 6 months of loan effectiveness. Thereafter, the PMU will submit semiannual monitoring and evaluation reports to ADB throughout project implementation.

8. Project Review

50. The PMU and PIUs will regularly review and evaluate project performance, while MOFT, MOAD, and ADB will jointly assess project implementation at least once every year. Participating island communities, island and atoll offices, and PIUs will undertake extensive internal project monitoring. The Government, PMU, and ADB will conduct a comprehensive midterm review 2.5 years after the Project starts or after the first phase of the settled sewerage system is implemented, whichever is sooner. The review will (i) cover the scope, design, and implementation arrangements of the Project; (ii) identify changes needed since the time of project appraisal; (iii) assess implementation performance against project indicators; (iv) establish compliance with loan covenants; and (v) identify problems, constraints, and, if necessary, recommend changes in the design or implementation arrangements. Within 3 months of physical completion of the Project, the PMU will make publicly available a project completion report in the standard ADB format. 16

IV. PROJECT BENEFITS, IMPACTS, AND RISKS

A. Expected Project Benefits and Impacts

51. Poverty in the Maldives stems primarily from regional disparities in living conditions related to remoteness of the islands and lack of infrastructure and social services in the atolls (footnote 3). Persistent regional income and non-income inequality must be reduced. The Project is consistent with the Government’s strategy to reduce poverty by promoting balanced and equitable development. The Project supports the development of regions, with focus islands as growth centers. The Project will provide the necessary geographic intervention to reduce poverty in the Maldives and will help the Government achieve the Millennium Development Goals (MDGs).33 Details on the action program and performance criteria for Regional Development and the summary poverty reduction and social strategy are in Appendix 12 and 13, respectively.

52. The Project will generate significant benefits at the household, community, island, atoll, and regional levels. Households and communities on focus islands will be direct beneficiaries of environmental infrastructure, and community mobilization components. Planning, environmental management, and institutional strengthening components of the Project will benefit communities, islands, atolls, and regions, and strengthen planning and management capacities at all levels. Benefits will include (i) protection of scarce natural resources under threat, (ii) improvement of quality of life for beneficiary households and communities, (iii) empowerment of communities, and (iv) economic benefits.

53. Environment and natural resources protection. Island ecosystems are among the most vulnerable in the region. Environmental degradation can render an island uninhabitable, increase its vulnerability to natural disasters, and impact on key economic sectors, particularly tourism and fisheries. On the focus islands, unemployment is significant with only 50% of people 15–64 years old are employed. Existing income sources are threatened by environmental degradation. Protecting the marine environment is important in the atolls since primary fishing activities engage 18% of the total labor force, and 98% of fisheries workers are in the atolls, where this sector is the main employer. As most atoll workers are employed in fishing, protecting fisheries is central to any poverty strategy. The Project is a step toward meeting the needs of current and future communities. Provision of rainwater tanks will increase the availability of clean drinking water. Support for sanitation and sewerage and integrated solid waste management will prevent degradation of groundwater resources and the marine environment.

54. Quality of Life. The lack of basic infrastructure and social services in the atolls exacerbates income and non-income poverty. Environmental infrastructure on the focus islands will provide basic needs to vulnerable households and communities. Rainwater tanks will provide drinking water to an initial 2,000 households, constituting over 20% of the focus islands’ population. An estimated additional 5,500 tanks will be provided through a revolving fund by 2020. The Project will target poor households, who do not have rainwater tanks and use well water (which can be contaminated with fecal coliforms) or public rainwater tanks.

33 The Project will help achieve MDG 1 (reduce the proportion of people living on less than a dollar a day), MDG 7 (ensure environmental sustainability and reduce the proportion of people without sustainable access to safe drinking water), and MDG 6 (combat various diseases). 17

55. The Project is expected to impact on public health. The atoll population suffers from a high incidence of intestinal parasite infestation due to poor sanitation and lack of safe water, and about 50–75% of children below 5 are affected. Poor sanitation and sewerage spread other waterborne diseases such as diarrhea, while solid waste transmits disease. Households— particularly poor ones—use much time and resources to collect water, manage solid waste, and attend to health problems caused by poor waste management. Most of the burden falls on women. The Project includes a gender action plan, which ensures that women will benefit from and implement the Project.

56. Improved coastal and lagoon waters will protect fish and other marine resources on which households depend for daily subsistence and nutrition, especially benefiting the poor, women, and children. Environmental infrastructure on the focus islands is expected to benefit over 9,000 residents, particularly the poor, who comprise over 60% of the population. The improvements to water supply, sanitation and sewerage, and solid waste management on the focus islands can be replicated on other islands. Environmental infrastructure will result in saving and even generating resources, which will improve the quality of life and strengthen livelihood opportunities. For example, increasing water supply alleviates competing water use for agriculture. Treated sewage water can be used for irrigation, and sewage sludge and biodegradable solid waste for compost materials. Expanding production in backyard gardens will help vulnerable households increase their food security and incomes. The Project’s components will create jobs. Project design ensures pro-poor and non-gender-discriminatory employment. A concerted effort to provide basic infrastructure for environmental improvement and social services, environmental management, and integrated land-use planning and area development can promote private sector activities, which will spur economic growth in the atolls.

57. Community Empowerment. Pre-project consultation confirmed the importance of strong links with the community in project implementation. Through the Project’s community mobilization component, community groups will establish mechanisms for O&M of environmental infrastructure.34 Training mechanisms and programs built into the Project will strengthen communities’ capacity. Community participation will be consolidated through an environmental awareness program, which will enable project beneficiaries to use sustainable practices, and help conserve island and marine environments.35

58. Community participation will benefit vulnerable groups. Women have the potential to be active in managing solid waste. The participation of beneficiaries in project design and implementation will instill in them a sense of ownership. User charges will help establish a stake in the Project among users. Information and education campaigns will help raise community awareness on health, cleanliness, and the environment. These will reduce neglect and misuse of public assets and help sustain the project gains in the long run. Strong coordination and effective partnership to reduce disparities, particularly in the atolls, can address the high cost of infrastructure and social services.

59. Economic Benefits. The environmental infrastructure component will create quantifiable benefits (marketable goods and services) as well as nonquantifiable benefits (improved health, welfare, and amenities). Surveys of willingness to pay have been used to derive consumer values for the outputs of two subcomponents. Market values are available for

34 They can be the mechanism to organize direct community efforts to implement sanitation and sewerage, and solid waste management schemes. 35 The programs should maximize the potential for direct community action, particularly by schoolchildren, in environmental improvement projects, such as “clean-up” campaigns. 18 two of the three subcomponents. The economic internal rate of return (EIRR) of the water supply subcomponent is 35%, and the average EIRR for the environmental infrastructure component is 18.7%. Projected cash flows suggest that the rainwater tanks and solid waste management centers will be financially sustainable, including replacement costs of equipment as well as O&M. Though the surveys did not demonstrate full cost recovery for the sanitation and sewage treatment subcomponent, they indicate provision of sufficient resources for O&M. The economic and financial analyses are in Appendix 14.

B. Assumptions and Risks

60. The success of the Project in meeting its goal assumes that the country’s economy will continue to develop and the Government will successfully implement its regional development program.

61. Implementation Risk. Project implementation assumes that skilled and experienced staff is available for project activities. Key Government agencies do not have enough skilled staff, but the project design will solve this problem through consultancies and training.

62. Institutional Risk. Improving atoll administration assumes that (i) staff trained under the Project will not be transferred to other institutions; (ii) collection, analysis, and management of environmental data and drafting of land-use plans will be timely; and (iii) MOAD and the PIUs will be committed to the Project and receive the resources to carry out their mandate.

63. Operation and Maintenance Risk. Unless cooperatives are allowed to exist as legal entities and engage in multipurpose activities, sanitation facilities are not likely to be sustainable. Once the draft cooperative regulation becomes effective, communities may establish cooperatives to provide utilities, potentially including electricity and telecommunications. The cooperative will increase community self-development and reduce dependence on top-down approaches. However, certain island chiefs may perceive these cooperatives as infringing upon their authority and may not encourage the creation of an enabling environment for their adequate functioning. The Government must ensure that cooperatives can operate free of political intervention, adequate regulation is enacted and the appropriate Government agency has the power to protect the environment and public interest. The Government should help cooperatives become financially sustainable by endorsing and supporting the proposed structure and administration system.

64. Coordination with Tsunami Recovery Activities. The Government must ensure that activities undertaken through the Project are adequately sequenced with the overall tsunami recovery effort. Long-term institutional strengthening objectives under the Project should be pursued within the regional development context.

V. ASSURANCES

A. Specific Assurances

65. In addition to the standard assurances, the Government and the Ministry of Finance and Treasury have given the following assurances, which are incorporated in the legal documents:

(i) The Government will ensure that within 1 month of loan effectiveness, (a) a NPSC will have been established, and (b) each PIU will have been established and fully staffed to the satisfaction of ADB; 19

(ii) RPACs will be established in each of the Focus Islands within 3 months of loan effectiveness; (iii) The Government will not replace the PMU project director or any of the PIU managers without ADB’s prior approval; (iv) The Government will ensure that no physical infrastructure within the scope of the Project will be constructed on Mahibadhoo, Naifaru, and Fonadhoo until the Government, through MHUDB, has approved their land-use plan. The technical committee established under MHUDB and mandated to approve land-use plans will be required to assess them and either approve them or provide comments for review and revision within 3 months of the plans’ submission; (v) The Government will provide support to facilitate IDP formulation. The Government will ensure that, within 6 months of loan effectiveness, each selected island will have (a) its IDP formulated and properly sanctioned by the authorized agency, and (b) base maps completed to the satisfaction of ADB. The selected islands refer to those islands within the North Central, Central, and South Central regions, which will formulate their land-use plans through the Project; (vi) The Government will ensure that the land-use and atoll development plans will be formulated consistently and cohesively, and that they integrate the islands’ needs and aspirations as reflected in the IDP; (vii) The Government will help establish a cooperative within each island community, and allow the cooperatives to plan, design, construct, operate, and maintain (including impose tariff charges on end users) public utilities and their infrastructure; (viii) The Government will submit to the Parliament, within 2 years of loan effectiveness, the draft cooperative law, which will allow cooperatives to exist as legal entities and assume the responsibility to, among other things, operate and maintain public utilities; (ix) The Government will ensure that no physical infrastructure in the Focus Islands is constructed for sanitation and solid waste management until an O&M strategy has been drafted, including methodology for tariff structure and tariff collection and administration developed in a participatory and consultative manner; (x) The Government will ensure that throughout project implementation, any involuntary resettlements will be mitigated in accordance with ADB’s Policy on Involuntary Resettlement, Handbook on Resettlement, and the proposed resettlement plan; (xi) The Government will ensure that all environmental mitigation measures identified in the IEE are incorporated into the project design and implemented during project construction and O&M, in accordance with the Government’s environmental laws and regulations, ADB’s Environment Policy, and ADB’s Environmental Assessment Guidelines (2003). The Government will also ensure that environmental compliance with the above requirements and environmental monitoring results collected throughout the Project are reported in the quarterly reports submitted to ADB; (xii) The Government will ensure that women will occupy 25% of managerial positions in the PMU and PIUs. The Government will implement the agreed-on gender action plan; (xiii) The Government will ensure that throughout project implementation, adequate budgetary allocations of the required counterpart funds are made and approved and released on time; 20

(xiv) The Government will ensure that independent external auditors will audit project accounts, including the imprest accounts. The annual audited accounts and financial statements, together with audit reports, will be submitted within 6 months following the end of the relevant Government fiscal year; (xv) Before establishing the imprest accounts, the Government will appoint an accountant in the PMU and each PIU; (xvi) Baseline information will be collected and submitted to ADB within the first year of project implementation.

B. Conditions for Loan Effectiveness

66. The following conditions are to be complied with prior to loan effectiveness:

(i) The Government will provide the necessary legal framework, through a legal instrument to be issued by the President, to allow cooperatives to exist as legal entities and to assume, among other things, O&M of public utilities; (ii) The Government will ensure that the PIU managers, whose time will be fully dedicated to the Project, have been appointed to the satisfaction of ADB; (iii) The Government will ensure that the PMU will have been established and fully staffed to the satisfaction of ADB. (iv) The Government will formally approve guidelines that will define the roles and responsibilities of the various stakeholders involved developing the islands and atolls.

C. Conditions for Loan Negotiation

67. The Government will ensure that the PMU project director, whose time will be dedicated to the Project, has been appointed to the satisfaction of ADB.

VI. RECOMMENDATION

68. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and, acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve the loan in various currencies equivalent to Special Drawing Rights 3,903,000 to the Republic of the Maldives for the Regional Development Project, Phase II – Environmental Infrastructure and Management, from ADB’s Special Funds resources with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement presented to the Board.

Joseph B. Eichenberger Vice-President 5 April 2005

Appendix 1 21

DESIGN AND MONITORING FRAMEWORK

Design Performance Targets/ Indicators Data Sources/Reporting Assumptions Summary Mechanisms and Risks Impact Assumptions (A): Increase in well-being as measured UNDP Human A: Well-targeted and Increased standard of by the UNDP vulnerability index Development Report for adequately funded living in the Central the Maldives Government regional Regions Increased formation of social development policy. capital as measured by the ADB country strategy A: Well-coordinated community participation index updates Government activities

Outcome A: Local community Compliance with island/atoll PPMS of implemented actively participating in the Improved environmental development plans subcomponents development process and land management in A: Atoll/island and local the Central Regions Environmental and public health UNDP Human forum representatives fully standards (such as WHO Development Report for involved in the Project recommended concentrations) met the Maldives Risks (R): R: Inappropriate Atoll/island office statistics mechanisms for redistributing development benefits Outputs 1.1 95% of households with links PPMS of implemented A: Continued support for 1. Environmental to small bore sewerage in subcomponents sector reforms infrastructure in the focus islands A: Local marketing Central Regions improved 1.2 95% of households with Site surveys, contract potential for recycling (4Q 2005–3Q 2010) individual septic tanks in supervision reports, and products focus islands scheme completion A: Sanitation and 1.3 Introduction of gray-water reports sewerage schemes and discharge areas in housing solid waste management lots (achieve more than 75% Atoll/island office statistics systems, including coverage) contributions and tariffs, 1.4 50% reduction in monitored Community-based agreed to by the groundwater pollution organization/private beneficiary communities 1.5 Decrease in number of visits company annual reports A: Ability and willingness to health center in focus of consumers to pay islands for diarrheal and Groundwater pollution R: Legal framework for waterborne related diseases tests cooperatives to form not by 50% endorsed 1.6 95% participation by the System reliability A: Commitment to an atoll/island households in monitoring and tests autonomous and focus islands in solid waste accountable service management program. Measurement of sludge delivery mechanism 1.7 At least 98% subprojects in re-use and groundwater A: Effective O&M program each focus islands completed, re-charge A: Local community in use, operational, and participation maintained Beneficiaries monitoring A: Credit terms attractive 1.8 Regular transshipment reporting enough to stimulate services from island demand established for solid waste A: Private collectors management operate in the market 2. Strengthening planning 2.1 Sustainable development in Record system from A: Government’s and environmental the atoll islands strengthened planning and land commitment to implement management 2.2 Conservation of allocations planning guidelines (4Q2005–3Q 2010) environmentally sensitive A: Land administrations areas (e.g., groundwater Development and land- responsive to the aquifers) improved: use monitoring and Government’s regional groundwater salinity reduced enforcement system development objectives by at least 20% PPMS of implemented R: Inadequate 22 Appendix 1

Design Performance Targets/ Indicators Data Sources/Reporting Assumptions Summary Mechanisms and Risks 2.3 Improved water resource subcomponents Government staff capacity conservation through lower R: Land base maps and rates of water consumption Septic tank uptake rate IDPs needed for LUPs not 2.4 Extended reported life of and distribution available on time septic tanks through regular R: Noncompliance with maintenance Beneficiaries monitoring the land-use planning 2.5 Indiscriminate dumping of septic tank desludge guidelines and approval solid waste in sensitive island program system by the locations terminated Government line agencies 2.6 High levels (70–80%) of Beneficiaries monitor A: Island/atoll staff and participation in reuse/recycling initiative communities participate in reuse/recycling of solid waste and set-up and clean-up institution and capacity- and sewage sludge campaign effect building effort 2.7 Community-based clean-up A: Commitment to campaigns, particularly environmental protection through extension of of the islands environmental education R: NGO/CBO capacity program of schools inadequate 2.8 Development of an early- A: Island/atoll staff and warning mechanism to local communities prioritize action in participate in institutional groundwater conservation and social capacity- measures building efforts R: Loss of interest in the monitoring program in the medium/long term 3 Building management 3.1 Community support (>80%) PPMS of implemented A: Local community and implementation for project components and subcomponents participation in capacity agreement to contributions development planning (4Q2005–3Q 2010) and tariff payments Island development R: Unavailability of 3.2 Context for social mobilization committees and island counterpart funding and participation in land community groups A: Island/atoll staff and management defined local communities 3.3 Legal framework for Project steering participate in institutional establishing cooperatives committee, regional and capacity building issued by the President and project advisory effort to improved quality later established by law committee minutes, of life and improved submission to Parliament project progress reports service delivery 3.4 Community intervention in R: PMU and PIU implementation works and counterpart staff not scheme construction available and fully 3.5 Community agreement for involved in project O&M responsibility activities 3.6 Sufficient Government R: Loss of trained staff to counterpart staff in the PMU, employment alternatives PIUs, line agencies 3.7 In-house and other staff training for PMU, PIUs, Government line agencies, island/atoll offices, and community groups Appendix 1 23

Activities with Milestones Inputs 1.1 Sanitation and sewage treatment for the Focus Islands improved Total Cost 1.1.1 Agreements with islands to ♦ Consultations conducted with IDCs and ($000) implement and manage expanded awareness raised among communities sewerage networks and simple ♦ Agreements are signed A. Civil Works (397) reed bed treatment plants Start: 4Q2005. Complete: 1Q2006. B. Equipment, Materials 1.1.2 Water and sanitation cooperatives/ ♦ A minimum of one cooperative per island and furniture (3,318) associations established per scheme established C. Staff Development (245) Start: 4Q2005. Complete: 2Q2006. D. Studies, Research (60) E. Consulting Services 1.1.3 Surveys and detailed design ♦ Surveys conducted with population (at (1,710) developed least 60% consulted) F. Project Administration ♦ Design completed (962) Start: 2Q2006. Complete: 4Q2006. G. Contingencies (605) 1.1.4 Subproject site selection ♦ Site selected in participatory way H. Interest (204) ♦ Resettlement endorsed, if any Start: 1Q2007. Complete: 1Q2008. Grand Total (7,500) 1.1.5 Contractor selection ♦ Bidding documents tendered ♦ Contractors selected Start: 4Q2006. Complete: 1Q2007. 1.1.6 Construction, procurement and ♦ O&M strategy finalized installation of septic tanks, reed bed ♦ 500 individual, 24 communal septic tanks treatment, outfall, and reuse installed ♦ Reed bed construction completed and tested Start: 4Q2007. Complete: 4Q2009. 1.1.7 Turnover to communities ♦ Communities trained for O&M ♦ Sanitation and sewerage O&M turnover to communities ♦ Tariff methodology and structure finalized Start: 4Q2009. Complete: 2Q2010. 1.2 Water supply increased ♦ Revolving fund established 1.2.1 Develop revolving fund ♦ Communities in 3 regions informed arrangements for community Start: 4Q2005. Complete: 4Q2005. investment 1.2.2 Procurement and installation of Start: 1Q2006. Complete: 2Q2008. rainwater tanks 1.2.3 Maintenance training Start: 2Q2006. Complete: 4Q2009. 1.3 Integrated solid waste management ♦ Consultations conducted with IDCs and system developed awareness raised among communities. 1.3.1 Develop agreements with islands to ♦ Agreements are signed. implement and manage integrated ♦ A minimum of 1 cooperative per islands solid waste management centers per scheme established. Start: 4Q2005. Complete: 2Q2006. 1.3.2 Develop solid waste management ♦ Strategy completed and endorsed atoll strategy Start: 4Q2005. Complete: 2Q2006. 1.3.3 Public awareness and training ♦ Public awareness campaigns and campaigns developed and training conducted implemented Start: 1Q2006. Complete: 2Q2008. 1.3.4 Construction, procurement, and ♦ Surveys conducted with population (at installation least 60% consulted) ♦ Design completed Start: 3Q2006. Complete: 4Q2006. ♦ O&M strategy finalized ♦ Site selected in participatory way ♦ Resettlement endorsed, if any Start: 4Q2006. Complete: 1Q2007. ♦ Bidding documents tendered 24 Appendix 1

Activities with Milestones Inputs ♦ Contractors selected Start: 1Q2007. Complete: 2Q2007. ♦ Construction, procurement and installation conducted Start: 2Q2007. Complete: 4Q2009. 1.3.5 Turnover to communities ♦ Communities trained for O&M ♦ O&M turnover to communities ♦ Tariff methodology and structure finalized Start: 4Q2008. Complete: 2Q2010.

2.1 Land-use planning 2.1.1 Capacity building and training to implement planning guidelines and ♦ At least 5 staff trained develop land-use plans Start: 4Q2005. Complete: 3Q2006. 2.1.2 Preparation of 24 land-use plans for ♦ IDPs and base maps complete. the regional growth centers ♦ 24 land-use plans prepared Start: 1Q2006. Complete: 2Q2008. 2.2. Economic development planning ♦ Study completed for Fonadhoo-Gan and 2.2.1 Economic development planning for applied to other centers regional growth centers case study Start: 3Q2006. Complete: 2Q2007. 2.3 Environmental awareness program development 2.3.1 IDCs, WDCs, community leaders trained in planning, monitoring, evaluation of sanitation and hygiene Start: 4Q2005. Complete: 2Q2010. improvement 2.3.2 Develop and implement environmental ♦Islands in all 13 atolls covered over 5 awareness programs for beneficiaries years communities in hygiene, health, and Start: 4Q2005. Complete: 2Q2010. sanitation. 2.4 Environmental monitoring enhancement 2.4.1 Develop environmental monitoring ♦ Monitoring program developed and program to establish trends in beneficiaries trained. groundwater quality and salinity levels Start: 4Q2005. Complete: 4Q2009. 2.4.2 Conduct study on pollutant migration ♦ Study completed ♦ Spacing minimum distance between groundwater-gray water and septic tanks determined Start: 4Q2005. Complete: 2Q2006.

3.1 Community mobilization for project development 3.1.1 Refine approach to community Start: 4Q2005. Complete: 4Q2005. organization 3.1.2 Conduct community mobilization and ♦ Communities in 3 focus islands organization for cooperative organized in year 1 for O&M management ♦ 3–5 communities organized/year. Start: 1Q2006. Complete: 4Q2008. 3.1.3 Optimize opportunities for women's ♦ Women consulted and mobilized through groups in community-based O&M WDC Start: 1Q2006. Complete: 4Q2008. 3.1.4 Prepare packages and provide O&M Start: 3Q2007. Complete: 4Q2009. training to communities ADB = Asian Development Bank, IDC = island development committee, IDP = island development plan, LUP = land-use plans, O&M = operation and maintenance, PIU = project implementation unit, PMU = project management unit, PPMS = project performance management system, UNDP = United Nations Development Programme, WDC = women development committee, WHO = World Health Organization Appendix 2 25

INSTITUTIONAL AND SECTOR ANALYSIS

A. Project Implementation—Capacity of Government Institutions

1. The Government of the Maldives is a single tier, headed by an elected president, to whom 19 ministries and their sub-agencies, the Attorney’s General Office, and several national agencies report. The Maldives are grouped into 20 administrative atolls, which function as local units administered by atoll offices. The following table outlines the functions of national and local agencies.

Table A2.1: Project Related Functions of Government Tiers within the Central Regions

Agency Project-related Function Current Comment Capacity MOAD Oversees atoll administrative Senior Administers institutional structure. Mandated to administer professional and framework and mandates of institutional framework and mandates junior staff the Government in the atolls, of the Government in atolls. Oversee allocated to through the northern and activities of atoll chiefs and island development southern regional offices and officials administering Government projects (under- atoll and island offices lands and areas not entrusted resourced) Coordinating, planning, otherwise. Undertake economic and implementation and monitoring social development, land-use of atoll and island development planning of atolls. Relocate people. Atoll Office Administers and manages key atoll Typically 1–2 Administers and manages key public services and infrastructure day staff members atoll public services and to day, including peace and order. allocated to infrastructure day to day. Has Oversees and monitors operation of Projects Section a Projects Section, which Government agencies, agricultural develops, coordinates, activities, and education. Collects and oversees, and monitors maintains information and data on development projects and their status of atoll and population. impacts. Island Office Administers and governs with No dedicated Administers and governs with guidance from MOAD. staff for guidance from MOAD. development projects. MEC Responsible for environmental Senior Organized in a two-tier conservation and management, and professional and structure (departments and solid waste management. technical staff responsible agencies). Has an allocated to Environment Section. environment work (under- resourced). MHUDB Responsible for land-use planning Senior Lead agency responsible for and management, provision of professional and land-use planning and housing and shelter. Implements the technical staff management, and provision of national population and development allocated to LUP housing and shelter. consolidation policy. Develops a work (under- national physical plan to make resourced). optimal use of land in the country. MOH Responsible for health services and Senior Discharges responsibility infrastructure, promotion and professional and primarily through sections and maintenance of public health. technical staff. agencies under its supervision, such as MWSA. MWSA Manages and oversees Senior Lead agency responsible for implementation of environmental professional and water supply and sanitation. management subcomponents. Plans technical staff and implements programs for allocated to 26 Appendix 2

Agency Project-related Function Current Comment Capacity sustainable use and conservation of environmental fresh water. Lead agency responsible management for water supply and sanitation. work (under- Licenses private parties that supply resourced). water. MPND Primary responsibility for national Senior Primary responsibility for planning policy and development. professional and national planning policy and Lead agency for national statistics technical staff development. Lead agency for and GIS, and implementing National allocated for national statistics and GIS, and Population and Development regional implementing National Consolidation Policy development. Population and Development Consolidation Policy MOFT Manages the government’s budget Senior Manages the Government’s and finances, including foreign loans professional staff budget and finances, including and donor assistance. allocated for foreign loans and funding project execution agencies assistance. and monitoring Counterpart agency for ADB. MHUDB = Maldives Housing and Urban Development Board, MWSA = Maldives Water and Sanitation Authority, MOAD = Ministry of Atolls Development, MOFT = Ministry of Finance and Treasury, MOH = Ministry of Health, MEC= Ministry of Environment and Construction, MPND = Ministry of Planning and National Development. Source(s): ADB sources.

2. The three core Government agencies directly involved in implementation of Regional Development Project, Phase II – Environmental Infrastructure and Management (the Project) are the Ministry of Atolls Development (MOAD), Ministry of Environment and Construction (MEC), and Ministry of Health (MOH). Of these, MOAD is the primary agency responsible for atoll development, and also for regional development in the atolls. The function of MOAD is changing from atoll administration to development, in keeping with the regional development policies of the Government. Atoll and island administrative agencies are taking on new responsibilities and functions.

B. Project Implementation Capacity of Community Based Organizations, Non- Governmental Organizations, and the Private Sector.

3. The choice of implementation modality may vary case by case, depending on the island, but the focus will be on community-based or private sector-based solutions. Different island communities have varied organizational and management capacities of island development committees (IDCs), island offices, and the private sector. Some IDCs have demonstrated management and technical capacity to successfully undertake utility management in the long term (e.g., electricity supply in Mahibadhoo), while others have do not have similar experiences in utility management (e.g., Naifaru). Many islands have other community-based organizations (such as district associations, youth clubs, or social development clubs) or a strong private sector that undertake community activities (such as education, electricity provision and cable television) in lieu of the IDC or island office (e.g., Naifaru, Fonadhoo. and Gan-Laamu).

4. The lack of capacity of IDCs in planning and implementation of development projects will be a serious impediment to successful implementation of the Project. The IDCs are mainly involved in the provision of social services, such as preschool education, electricity provision, community rainwater tanks, and harbor development. However, these projects have been mainly carried out on an ad hoc basis, with a focus on service provision rather than project sustainability and self-sustainability. Integrated community planning, supported by strengthened human resource capability of IDCs, specifically in development planning, monitoring and implementation, and financial management and administration, is required. In cases where Appendix 2 27

development planning has taken place, to some extent, implementation by IDCs has been constrained by limited availability of development financing. Their lack of legal status is also a major constraint in obtaining loans from financial institutions, necessitating a Government guarantee, which may not be forthcoming. This issue needs to be urgently addressed, if the water and sanitation and solid waste management subcomponents are to be implemented by community-based organizations (CBOs). MOAD is reported to be working to develop the legislation to establish IDCs as legal entities. Within this context, the formation of community cooperatives to implement and manage small-scale improvements to island services and utilities will be possible. However, the normal legal process may lag behind the implementation of the Project, and it should be fast-tracked to ensure the feasibility of community-based implementation.

5. Other CBOs involved in development-related initiatives are typically youth clubs, past pupil’s associations, environmental clubs, and sports clubs. However, these organizations lack even the semiformal role of IDCs and women’s development committees (WDCs) in development planning and participation. CBOs are typically weak, poorly managed, and involved in immediate community-related work, rather than long-term development activities. In islands with divisions between settlement districts, CBOs occasionally function as ad hoc district organizations that take on development functions of the IDC, such as providing preschool services and electricity. CBO leadership and initiative is stronger in such situations, possibly because of the competitive spirit between districts, leading to greater community participation in such CBOs. Competition between CBOs for available public and private funds, and the drive to take on bigger projects than the competing CBO, have also led to problems such as mismanagement of funds, and undertaking of inappropriate large-scale projects that end up being a financial drain on community resources.

6. Private sector involvement in the provision of social services is, in general, poorly developed in the atolls. While major private companies are involved in economic activities such as tourism and fisheries, other sectors, including the provision of social services and utilities, are typically on a small scale, and have, in general, not been sustained. Past initiatives in the provision of health services by private parties petered out due to expansion of the national health service infrastructure. Similarly, private sector provision of education services and infrastructure is limited, and focused on specific sectors such as preschooling, and tuition and Qur’an classes. Private suppliers of electricity services and of cable TV services are also being forced out by entry of IDCs into such ventures.

7. While no established indicators measure the success of IDCs, other CBOs, and the private sector in undertaking development projects, there is great variation on the level of community development between and within the atolls. Such variation cannot be directly attributed to the CBOs, as there are other external factors such as Government’s national priorities; sectoral development initiatives taken by Government agencies; and internal factors such physical, natural, human, and supporting infrastructure characteristics that come into play.

C. Overlaps, Gaps, and Weaknesses in Institutional Framework

8. Four fundamental weaknesses in the policy framework have been identified: (i) inadequate policy integration among Vision 2020; sixth National Development Plan; Maldives Economic Strategy; and sectoral, regional, atoll, and island development plans; (ii) inadequate definition of policy and planning framework for regional development; (iii) lack of operational objectives, target setting, and establishment of measurable performance indicators and benchmarking to link the strategic policies to desired outputs; (iv) lack or real consensus of atoll 28 Appendix 2 and island stakeholder groups for the national population and development consolidation policy and its implementing mechanisms.

9. A number of overlaps, gaps, and weaknesses in mandates and institutional arrangements have also been observed in land-use planning, environmental management, sanitation, and water supply. Institutional analysis shows overlapping mandates and functions of the Maldives Housing and Urban Development Board (MHUDB), MOAD, and the Ministry of Planning and National Development (MPND), given that all three have some capacity for surveying and land planning. Gaps are evident in that land-use planning guidelines and monitoring mechanisms in the atolls are not articulated or established. The activities of MOAD in land-use planning in the islands proceed in an ad hoc manner and are reported to be inconsistent.

10. In contrast to many other areas of environmental management, the Maldives Water and Sanitation Authority (MWSA) has a clear mandate and responsibility for water resources management and supply, including establishing the regulatory framework, standards, and enforcement arrangements for water resources use and management. There are no overlaps in mandate with other agencies. Weaknesses include the lack of “soft” institutional arrangements, laws, or policies to administer water resources management, and lack of second-tier regulatory devices such as standards, guidelines, and codes of practice. The technical and monitoring services provided by MWSA to atoll and island populations are limited. Although broad-based policies for water resources management and pollution control are expressed in environmental planning documents, there are no implementing arrangements to address them under the Environment Law. Thus, there is a gap in environmental controls and monitoring of water resources management that is neither filled by MWSA, nor by the Environment Section of MEC.

11. The institutional arrangements for sanitation and solid waste disposal are also weak, and poorly articulated and implemented. In this respect, while there is no overlap in the mandate of the MOH, MEC and MWSA, there are distinct overlaps in work programs and projects. There is ambiguity as which agency is assigned the primary responsibility for solid waste management. Water supply and sanitation management cannot be separated from the carrying capacity of islands and their ecosystems, and hence must be integrated into land-use planning.

12. Overall institutional capacity for environmental conservation and management is constrained by the existence of a large number of institutions mandated with the sustainable use, development, and conservation of terrestrial and marine resources. While the mandates for terrestrial and marine resource conservation and use are shared by different agencies (MEC, MOFAMR, MOAD, and MOFT), coordination among these agencies on policies, strategies, and programs needs to be strengthened. Gaps in the institutional structure include inadequate formal and nonformal vertical and horizontal linkages and mechanisms for coordinating policies, strategies, and actions with respect to shared mandates and harmonization of policies and regulatory framework with respect to resource systems.

D. Institutional Strengthening

13. The institutional strengthening component is designed to support the Government’s policy of regional development and to build capacity at national and local levels to manage and implement the Project. This component will focus on three major areas: (i) training and capacity building of local project implementation units (PIUs); (ii) strengthening capacity of national agencies to provide technical support; and (iii) provide support to regional development.

Appendix 2 29

1. Training and Capacity Building of Local Project Implementation Units

14. This component primarily addresses capacity building in implementation of the environmental management subcomponents and will be supported by building project management and implementation capacity at the atoll and island offices. This will be accomplished by (i) establishing the regulatory framework and institutional arrangements necessary for devolving environmental management to the local level (local government office, NGO, CBO, or the private sector); (ii) training atoll and island office staff, and staff to be appointed in the PIUs in sector policy, project planning, and management, and the social, technical, and financial aspects of project implementation modalities; and (iii) providing the required resources, and technical support and field experience to PIU staff in project implementation. PMU and other line agency consultants and staff will provide the required on- the-job training, field experience, and technical assistance.

2. Strengthen Capacity of National Agencies to Provide Technical Support

15. Project management and implementation responsibilities fall primarily on three national agencies, MOAD, MHUDB, and MWSA. These agencies have varying responsibilities in implementing project subcomponents, primary among these being the establishment of regulatory measures and guidelines, and technical support to local agencies (or parties) working within these guidelines. The Project is designed to provide support for these agencies to undertake these roles, through (i) providing technical assistance to develop and implementing the required regulatory measures and guidelines, (ii) assisting line agencies to build professional and technical capacity in specific areas by providing opportunities for overseas education and skills development, and (iii) providing additional resources and capability to undertake the project components.

3. Provide Support to Regional Development

16. The Project will lend support to regional development by assisting in the development of the social constituency for regional development in the Central Regions through social mobilization and institutional strengthening inputs. Capacity building and skills development inputs to MOAD and atoll and island offices will promote and facilitate needs based regional development. Support will be provided to MPND to undertake a case study in economic development planning in a selected regional growth center and atoll (e.g., Fonadhoo/Gan- Laamu Atoll). Capacity building of CBOs and the private sector in project implementation and environmental management will enhance their capacity to participate actively in regional development initiatives.

30 Appendix 3

EXTERNAL ASSISTANCE

Project Name Type of Source Year Amount Assistance Start End ($)

A. Agriculture 1. Home Gardening and Waste Grant Australia 1998 1998 25,185 Management Project (ACAS) 2. Project of Rehabilitation and Grant UNDP 1997 1999 56,000 Regenerating of Eco-system of Shaviyani Goidhoo

B. Environment 3. Projected Areas System Project Grant Australia 1999 2002 1,692,760 4. Environment Awareness Among Students Grant Canada 1997 1997 4,500 5. Community Managed Garbage Disposal Project Grant Canada 2001 2001 5,500 6. Holhudhoo Island Waste Management Pilot Project Grant Canada 2003 12,000 7. Construction of Designated Garbage Grant New Zealand 2001 2,050 Disposal Area 8. Training in Environmental Management Grant UNDP 1989 1997 502,126 9. Institutional Support for Coordination Grant UNDP 2003 70,000 and Integration of Environmental Consideration in National and Atoll/ Island Policies, Budget and Administration 10. PA for a Solid Waste Management Project Grant UNDP 2003 2004 20,000 11. Safe and Sustainable Environment Grant UNICEF 1999 2002 835,000

C. Health 12. Installation of Community Rainwater Grant Canada 2000 17,105 Collection Tanks in Maafaru 13. Installation of Community Rainwater Grant Canada 2000 12,830 Collection Tanks in Lhohi 14. Establishment of Community Water Tank Grant Canada 2002 5,145 Project in Landhoo in Noonu Atoll 15. Holhudhoo Drinking Water Supply Project Grant Canada 2002 5,616 16. Noomaraa Drinking Water Grant Canada 2003 4,480 17. Laamu Gaadhoo Water Tank Projects Grant Canada 2004 5,400 18. Laamu Maamendhoo Water Tank Projects Grant Canada 2004 6,700 19. Male' Water and Sewerage Project Grant Denmark/ 1995 1998 3,197,158 20. Rehabilitation of Male' Sewerage System Grant Germany 1994 1999 8,981,396 21. TA – Water Supply & Sewerage in Atolls Grant IsDB 2000 179,000 22. Villingili Water Supply and Sanitation Grant IsDB 1995 1998 2,002,127 23. Development of Water and Sewerage Grant IsDB 2004 6,699,000 Facilities Project in Atolls 24. Male' Water and Supply Project Grant NDF 1995 2000 2,836,000 25. Installation of Community Water Tanks Grant New Zealand 2001 2,050 26. Installation of Community Rain Water Grant New Zealand 2002 2003 6,676 Collection 27. Lhaimagu Island – Rainwater Collection Grant New Zealand 2003 8,470 Tanks 28. Villingili Water Supply and Sanitation Grant OPEC 1998 1999 3,000,000 29. Water and Sanitation Grant UNICEF 1994 1998 393,900 30. Programme Area 2: Nutrition, Health and Grant UNICEF 2003 2007 727,000 Water & Environmental Sanitation 31. Access to Safe Water and Environmental Grant UNICEF 2003 2007 174,800 Sanitation

Appendix 3 31

Project Name Type of Source Year Amount Assistance Start End ($) D. Housing 32. Capacity Building for Land Management TA IDA/WB 2001 2003 245,000 Housing and UB

E. Infrastructure 33. Atoll Development Grant ADB 1997 1999 625,000 34. Regional Development Project Ph II PPTA ADB 2003 400,000 35. Regional Development Project Loan ADB 1999 2004 8,137,414 36.The Infrastructure Development for Poverty Grant IsDB 2001 342,100 Alleviation in the Atolls 37. Preparatory Assistance for Atoll Grant UNDP 2003 196,750 Development Project

F. Institutional Development 38. Regional Development Planning Project PPTA ADB 1995 1995 600,000 39. Capacity Building for Decentralization of Grant UNDP 1997 2000 299,613 Atoll Development ADB = Asian Development Bank, IDA = International Development Association, IsDB = Islamic Development Bank, DANIDA = Danish International Development Assistance, NDF = Nordic Development Fund, OPEC = Organization of Petroleum Exporting Countries, UNDP = United Nations Development Programme, UNICEF = United Nations Children's Fund, WB = World Bank. Source: Department of External Resources, Ministry of Foreign Affairs.

32 Appendix 4

GENERAL APPROACH TO COMMUNITY ORGANIZATION

1. Project activities to organize communities for operation and maintenance in the Central Regions will concentrate in the first year on appointing, in each of the project implementation units (PIUs), the incremental staff required, improving office facilities; and identifying potential qualified nongovernmental organizations (NGOs) to facilitate community organization. An international consultant and a national consultant will be appointed to provide advice and develop community organization packages, the former, and long-term advisory and training support, in the case of the latter.

2. It is expected that from the third quarter of the first year of implementation, the social development staff in the project management unit (PMU) and each of the PIUs, and staff of the NGOs identified will be trained in participatory approaches; development of criteria for selecting communities to organize; community organization; participatory land-use planning; and preparation of management plans for structuring, organizing, and running a cooperative. This staff will be sensitized to concerns about gender and development. The international and national consultants will conduct the required training through on-the-job training, workshops, and seminars.

3. The Project will collect baseline information on communities to prioritize them, taking account of the particular needs of structures already set up for community-based management, such as the island development committees and women development committees. Information on communities collected in the process of prioritizing targets will also serve for project monitoring and evaluation. Communities in the focus islands will be favored at initial stages of the program, followed by the communities in their respective atolls. From year 3 onward, communities in the remaining atolls will be assisted in community organization.

4. Organizing communities for utilities management will begin with training and advice to promote their cohesion. The rights, responsibilities, and customs of each community structure will be elaborated and individual responsibilities clarified. Local techniques for demarcating key boundaries will be applied. Once the community structures are established, monthly meetings will be held with leaders, representatives, and members of communities; representatives of households with female heads; and representatives of poor households to familiarize them with the objective, components, and outputs of the Project, and the evolving regulatory framework. The meetings will also offer advice the rights of different groups of users, their roles and responsibilities as community members, the benefits of equal participation by women and conflict resolution mechanisms, as well as provide information on their capacity for utility management. These meetings will require that staff travel to the islands at times that suit the schedules of each community.

5. It is estimated that approximately 6 months will be required before the community finalizes and agrees on the approach to community-based management, and sufficient capacity is created among community leaders for them to undertake such functions as monitoring, accounting, and bookkeeping. Inputs and outputs to be provided by the environmental engineer, accountant, and social development PIU staff will be identified by the international community development consultant, provided in the form of a program to be piloted in the focus islands, and refined based on experience with the assistance of the international team leader and financial manager specialist, and national deputy team leader, and social development specialists. Thereafter, staff will continue to interact to encourage communities to formulate management plans and build the capacity of women to participate in decision making. On their side, the communities will monitor their own needs and increase in capacity and will report every Appendix 4 33

3 months to the PIU staff. Indicators will be selected jointly among the community, PIU staff, and support consultants. Training and awareness should be contain modules such as legal status and formation of cooperatives, organization and structure for managing a cooperative, defining roles and responsibilities, and sensitizing toward the need to introduce user charges to ensure the sustainability of the subcomponents.

6. Preferably toward the end of the second year, staff on each project island will hold a participatory workshop to publicize the results of community organization and encourage feedback. From the third year, the Project will extend its reach to other communities. At the same time, however, staff will have to backstop the communities organized earlier. Project staff will need to continuously work in the field in training and extension at the community level, training women’s groups for full participation, developing the knowledge and skills of the members of community, developing dynamic rules that will reflect changing scenarios as community-based management systems become stronger, and evolving strategies for utility management over time.

7. If appropriate, from the end of the third year, communities on the focus islands will receive technical advice on how to operate and maintain the sanitation and sewage treatment schemes, as well as solid waste management center facilities. Based on the atoll-wide strategy study undertaken by the Project, solid waste collection and management training will be extended to other islands. Technical training packages and manuals will be prepared by the team leader in coordination with the deputy team leader, whereas the theoretical and on-the-job training will be provided by the PIU staff, initially supported by the team leader and deputy team leader.

34 Appendix 5

GENDER ACTION PLAN

1. The uneven regional development in the Maldives has increasingly disadvantaged women. Women’s participation in the labor force has fallen from 63% in 1977 to 37% in 2002.1 Participation in decision making remains low, with women accounting for only 4.8% of elected members of Parliament. Traditional attitudes, low access to higher education, and limited employment opportunities largely constrain women to unpaid tasks of family and community life.

2. Focus group discussions and consultations with stakeholders confirmed the major role women play in solid waste and water resource management. Women spend substantial time sweeping outdoors and fetching water from wells and community tanks. Active involvement in managing solid waste and water will make women the best source of information regarding quantity, quality, and reliability of water used, and the quantity and type of wastes generated by her household. Communication and interaction with women is more effective when done by other women. Women will be important beneficiaries of the Project and can play a valuable role in its implementation.

3. During the social mobilization of communities, the importance of women’s participation will be explained to beneficiary communities in village meetings, hygiene education, and all other project activities. The following targets will be achieved in the implementation of urban and environmental infrastructure, integrated land use planning, development of a regional growth center framework, and community mobilization:

(i) Women will participate actively in community meetings and small group activities, with women constituting 50% of participants. (ii) Half the members of the executive committees of island development committees will be women. (iii) Separate discussions will be undertaken with women’s groups on technologies, service level of components of the Project, and social and infrastructure priorities for the development of communities. If major differences occur between women’s groups and mixed or men’s groups, project facilitators will take an active role in ensuring women's opinions and decisions are reflected in project implementation. (iv) In designing awareness campaigns, the role of women in the household will be taken into account.

4. The Implementing Agency, Ministry of Atolls Development (MOAD), will actively recruit qualified women in all levels of the project implementation structure, especially in project implementation units. The capacity-building component related to training will specify how the participation of women will be encouraged. The following targets will be achieved in project implementation and institutional strengthening:

(i) Women will constitute 25% of professional/technical staff implementing and monitoring the Project. (ii) At least 30% of government staff receiving training benefits will be women.

5. MOAD will be responsible for developing and implementing appropriate strategies and action plans to achieve these targets. The IA will monitor these targets through project progress reports and the project performance management system.

1 United Nations. 2002. Development Assistance Framework for Republic of Maldives 2003–2007. Male. Appendix 6 35

SANITATION IMPROVEMENTS ON THE FOCUS ISLANDS

A. Selection Criteria for Sanitation Improvements on the Focus Islands

1. The criteria for the consideration of the most appropriate sanitation improvements are listed below. Their significance as selection criteria varies from island to island in the light of existing levels of development, and the options available:

(i) The best use of fresh water resources with minimum loss to island; (ii) Minimum impact as source of groundwater pollution, which has to be protected for long-term use; (iii) Both acceptable to the community and cultural practice; (iv) Affordable capital and running costs, bearing in mind the costs of paying for other utilities; (v) Minimal impact, compatible with communal health and the costs to the island, on the marine environment; (vi) Application of any solutions to other islands in the Central Regions.

2. The following main considerations underlie the approach to sanitation on all islands:

(i) Sewage and grey water should be separated at source and disposed of separately; (ii) Discharge of sewage to groundwater should be avoided in all future sanitation schemes, and current discharges minimized; (iii) Prioritize water recharge to aquifer from grey water and treated effluent sources (following guidelines determining spacing between such sources and domestic wells); (iv) All discharges to the near shore lagoon environment, treated or otherwise, should be avoided; (v) Sanitation schemes should be fully accepted by the community and as simple as possible; (vi) Training and support in the operation and maintenance of the system must be arranged as part of any project.

3. The following principles as a background to selections of the sanitation schemes, should be adopted:

(i) Island groundwater is essential to the continued sustainability of the atolls and should be protected from sewerage; (ii) Low gradient simplified sewer systems are appropriate and effective for most islands. These are designed to carry only liquid effluent, must be used only with septic tanks at household or communal level; (iii) Septic tank effluent should if possible be provided with some form of secondary treatment before final discharge, or piped directly to deep-water disposal. No direct discharge to the near shore lagoon environment should be permitted; (iv) Deep-sea discharge of treated effluent should be considered as an option where environmental standards can be satisfied; (v) Reuse of treated effluent for agricultural purposes should be considered as an option where environmental standards can be satisfied; (vi) Septage should be re-used after drying rather than disposal at sea. Composting with green wastes would be preferable;

36 Appendix 6

(vii) Sewage and grey water must be separated at source (at household level); this practice is well established but should be reinforced and explained; (viii) To maintain the usability of groundwater and sustain resources, all grey water must be reused by re-infiltration.

B. Summary Review of Sewerage, Sewage Treatment and Disposal Options

4. The design and construction of sewers on atolls have unique challenges due to the low level and low gradient of the terrain. Adequate gradients to allow self-cleansing conventional sewers to function are not readily available without using below sea-level pumped interceptors. In some cases in the Maldives where population densities are high enough and space for on- site sanitation is severely limited, then self-cleansing conventional sewers similar to that used on Malé, can be the best solution. Table A6.1 provides a summary of sewerage options, whereas Table A6.2 presents a summary of acceptable sewage treatment and disposal options.

Table A6.1: Summary Review Sewerage and Disposal Options

Type Suitability Cost level Engineering Security Ruggedness Conventional High, needs Relatively For atolls the High High; flow Sewerage reliable power high. relatively blocking rare, supply. Effluent deep subject to regular quality good for excavation checks and re-use can cause maintenance. temporary groundwater salinity problems. Settled Can be used Moderate Very small High, No solids in sewerage without gradients with subject to effluent so pumping but high effluent blocking should must be used standards of being free of not occur. with on-site design, solids which Depends treatment construction demands however on (septic tank) to and regular householder remove solids. supervision maintenanc cooperation and essential. e and involvement in clearing of operation and sludge. maintenance. On-site Incompatible Short-term Simple, but sanitation with continued low: long inevitably Inherently polluting with severe groundwater term causes water quality problems as use, and small communal groundwater population density rises lot sizes. costs very contamination high, as Acceptable result of only at low pollution of population common densities. groundwater Source: Asian Development Bank estimates.

Appendix 6 37

Table A6.2: Summary Review of Sewage Treatment and Disposal Options

Effluent Equipment Process Constraints Costs Advantages Quality Septic tank Anaerobic Needs regular 8-10,000 Rf + Moderate Rugged and fail- digestion cleaning (de-sludging) connection. safe. and occupies significant area. On site infiltration causes groundwater pollution. Comminution for Dispersion & Requires favorable High; needs Low Economical on pumping to deep Biological marine currents for secure pumping space and sea discharge assimilation adequate dispersion. main and plant to efficient in deep water. removing waste from population. Packaged Typically aerobic, Needs permanent High capital and High High quality Treatment Plant batch treatment trained staff to operate operating (US $ effluent. Re-use process. and maintain. 80,000 – 140,000 opportunities for rotating biological contactor and diffused air plant) Biological Filter Aerobic biological Needs clear inflow High capital and High High quality treatment and careful moderate effluent Re-use maintenance. operating costs. opportunities Reed Beds Biological Needs space (3-5m2) Moderate Moderate Simple and assimilation of per capita, and regular rugged. Good dissolved cutting and cleaning. quality effluent nutrients by possible with re- specially adapted use opportunities vegetation. Source: Asian Development Bank estimates.

38 Appendix 7

SUMMARY INITIAL ENVIRONMENTAL EXAMINATION

A. Introduction

1. An initial environmental examination (IEE) was conducted for the Project, which covers the North-Central, Central, and South-Central Regions (Central Regions) of the Maldives. The Project is classified as under category B in accordance with Asian Development Bank (ADB) Guidelines Assessment Environmental. The Project will have no significant negative environmental effect. The project activities with marginal environmental impacts and proposed mitigation measures are summarized in this summary IEE. Overall, the Project is expected to result in substantial environmental benefits. The objective is the Project is to enhance regional planning and improve environmental and land management through a community-centered approach. This will be achieved through the provision of (i) basic environmental and social infrastructure to the poor on a least-cost yet sustainable basis, (ii) planned development and expansion of island settlements, and (iii) increased environmental awareness and capacity for addressing local environmental management.

B. Description of Project Components

2. Main components to be financed by ADB include (i) improving environmental infrastructure, (ii) strengthening planning and environmental management, and (iii) building management and implementation capacity in the Central Regions. Facilities will be provided based on projected population needs in 2020. The sanitation and sludge management component will comprise integrated settled sewerage schemes for the two focus islands (Fonadhoo and Mahibadhoo), consisting of a combination of septic tanks, and small-bore sewerage. Treatment options involve treatment in reed beds. This will be followed by recharge on land as a water conservation measure, provided World Health Organization (WHO) drinking water standards are met, direct discharge to deep-sea water, provided World Bank effluent discharge standards are met, or reuse for agricultural purposes. Discharge to the sea has been considered as an appropriate option to follow treatment, as this would result in rapid dilution and assimilation of any remaining nutrients and would prevent existing lagoon pollution. Sludge from septic tanks will be dried in special drying beds and further used for composting with green wastes has been proposed.

3. The solid waste management component will pilot an integrated scheme on the three focus islands, where waste segregation is to be conducted at household level, solid waste collection, processing, and recycling will take place in a single waste management center, followed by transshipment of wastes of commercial value. The land-use planning and development component will provide land-use plans for 24 islands and focus on provision of sustainable levels of population and housing growth; optimal patterns of infrastructure development; and conservation of the groundwater aquifer, coastlines, and other ecologically important areas.

C. Description of the Environment

4. The 1,192 low-lying coral islands of the Maldives archipelago extend over 26 atolls covering 115,300 square kilometers (km2). The islands stretch over a distance of 860 kilometers (km) north to south, and 130 km east to west. The average area of the 199 inhabited islands is 57.8 hectares (ha) and only three islands exceed an area of 400.0 ha. The maximum elevation is below 3 meters (m) above mean sea level and most (80%) of the land is less than 1 m above mean high-tide level. Thirteen of the atolls lie within the three Central Regions. Inside the atolls, Appendix 7 39 water depth is generally less than 80 m. The islands comprise layers of unconsolidated shell and coral sand and debris, lying on coral rock, which are normally less than 10 m below the surface. Soils are thin (20 centimeters or less) freely draining and highly alkaline. There is abundant calcium, magnesium, and phosphorus, and sufficient iron. The tropical climate is dominated by two monsoon periods. Temperature is 25−30 Celsius (oC), and rainfall is about 2,000 millimeters per annum. Water on the islands occurs almost entirely as groundwater within the aquifer that overlies the coral rock.

5. The Maldives displays a pristine marine environment. The well-being of the coral reef is of concern at national and international levels. Marine biological diversity is exceptional and considered to be one of the world’s richest ecosystems. There are 187 species of coral, 1,090 recognized species of fish, and almost 300 species of marine algae. There are also seven species of dolphins, nine species of whales, and five species of turtles, all of which endangered. The diversity of terrestrial ecosystems is limited by the smallness of the land areas, shallowness of the soil, and the high soil salinity. In spite of this, more than 260 native species of flora are recorded, and 18 species of birds are now protected under the Environmental Law. From 1995 to 1999, 25 protected marine areas were delineated in the Maldives.

D. Environmental Impacts and Mitigation Measures

1. Location

6. The Project’s sanitation and sewage schemes are on islands where sewage is discharged into lagoons. Location of reed beds (below ground level), requiring large areas, and sludge drying beds may result in potential odor problems in a confined island context. The location of such facilities will be selected in consultation with authorities and the local population. A buffer zone with appropriate vegetation will be incorporated, where possible, to attenuate nuisance and improve aesthetics.

7. The proposed waste management centers can give rise to noise, traffic, and unpleasant odors. In addition to avoiding residential areas, where possible, the site will be selected taking into account prevailing wind directions. The center should be in the coastal area, above the maximum high-tide level. Deposition bays receiving segregated household wastes for each of the schemes will be positioned conveniently to allow households easy access, while minimizing visual impact and potential odor problems.

2. Design

8. Pipe sizing and material selection to meet projected demands will be carefully selected to ensure no leakage, scheme impairment, or soil contamination. Accessibility for repair and de- blocking activities will also be considered for engineering design. In order to prevent potential contamination resulting from inadequate mixing and dispersion of sewage effluent discharge into deep-sea water, the discharge location will be carefully identified based on variations in marine current direction, depth, tidal stage and season, as well as interflow between lagoon and sea.1 Monitoring will be conducted to ensure that no physical or chemical imbalances affect biological and ecosystem activity. The waste management site will be equipped to prevent the spread of collected waste outside the containment area, and monitoring mechanisms will ensure appropriate waste segregation.

1 A separate hydrological study will be undertaken.

40 Appendix 7

3. Construction

9. The effects of trenching for settled effluent sewerage system will be minimal at Fonadhoo and Mahibadhoo, as the depth needed is shallow. All excavation is above groundwater level, less than 1.2 m deep. If found necessary, dewatering have to be carefully monitored. Use of small pumps and other efforts will be made to recharge any locally pumped groundwater to prevent induced salinity intrusion, which would affect household wells in the vicinity. Re-injection or re-infiltration of groundwater removed by pumping during excavation works to keep the ground dry during construction must be stipulated in the construction contract.

10. Excavation and anchoring activities in the lagoon and any works leading to the construction of a marine effluent discharge pipeline could lead to undesired turbidity and sedimentation. Equipment selection will take this factor into account. Moreover, works will preferably take place when tidal flushing is sufficient to avoid damage to the reef or lagoon environment. Access will be disrupted during construction activities. In addition, noise, vibration, and dust generation are likely to affect the population during construction. Contractors’ temporary plant, equipment storage, and living quarters can also be short-term environmental hazards. Good health and hygiene practices at work and reduced work accidents will be achieved by means of an occupational health and safety plan, which will include emergency plans, personnel basic training, first aid provisions, a comprehensive domestic solid waste management plan, and sanitation facilities for the construction camp. The supply of power for the solid waste facility schemes will involve burial of power cables (or suspension of power cables from poles), to be designed in a nonintrusive manner. Water supply could be provided from an on-site shallow well located to minimize danger from leachate contamination.

4. Operation

11. The success of the sanitation systems hinges partly on the adequate use of the septic tanks, whether domestic or communal. An important feature of good operation and maintenance (O&M) includes regular desludging of tanks, which could cause short-term odor problems. The appropriate functioning of reed beds and the overall sanitation scheme relies on preventing any toxic harmful substances, other than domestic sewage, from entering the system. Good practices will be disseminated through a dedicated public awareness campaign. Appropriate operation and maintenance of sewers, sewage pumping stations, or reed bed treatment systems will ensure no unpleasant odors are generated. Sludge disposal (composting enhancer or fertilizer) must be conducted and distributed adequately to prevent water and soil pollution. Discharge from the desludging tanker onto drying beds may cause short-term odor impacts.

12. Minor increases in road traffic caused by the disposal and collection of waste from bays are not expected to be significant in terms of road safety and/or noise generation. Operational problems from odor caused by temporarily stored putrescible wastes may occur. Leachate generation is unlikely to occur, provided waste is not stored for more than 1–2 weeks, Limited danger of groundwater pollution is foreseen as the natural flow is seaward. Impermeable floor concreting for the waste management center will prevent soil and groundwater pollution.

E. Environmental Monitoring Plan and Institutional Requirements

13. Technical and institutional mitigation measures will be incorporated in the detailed design of the Project. Measures of a planning, functional, institutional, and procedural character have to be included in the site selection criteria, tender documents, and Occupational Health Safety Plan. Mitigation measures related to construction will be stated in the contract with the Appendix 7 41 contractor, who will be responsible for the implementation of its own environmental management plan. The project management unit, Ministry of Atolls Development, will be responsible for monitoring and enforcement during construction. During the operational phase, the Maldives Water and Sanitation Authority will be responsible for implementing environmental measures in the sector of water and sanitation, and Ministry of Construction and Public Works and the Ministry of Environment and Construction (MEC) will be responsible for implementing environmental measures in the solid waste management sector. MEC will be responsible for overseeing overall environmental compliance and general ecosystems and environmental monitoring.

14. MOAD will request two independent assessments of environmental performance during the project period by a random sampling of project schemes and will focus on (i) compliance with environmental screening and related requirements, (ii) use of environmental guidelines for planning and development, (iii) satisfactory monitoring by the island office, (iv) satisfactory supervision by the contractors; (v) good general level of project environmental performance, (vi) and the O&M status of constructed facilities. The results of these assessments will be sent to the ADB for review. ADB will assess environmental compliance during its review missions. The environmental monitoring plan includes provisions for monitoring (i) groundwater level, (ii) groundwater quality (salinity and anthropogenic pollution), (iii) terrestrial ecosystems and biodiversity, (iv) coastal erosion, (v) aquatic reef and lagoon ecosystems and biodiversity.

F. Public Consultation and Disclosure

15. Meetings to discuss environmental matters were held with residents, including women, atoll and island officials for each of the focus islands, Government agencies and the United Nations (UN) agencies in Male. For each island, the lack of an adequate sewerage system was seen as a priority concern, together with the problem of unmanaged solid waste. Other secondary concerns included shortage of communal rainwater tank storage, and the need for street paving.

G. Findings, Recommendations, and Conclusions

16. Operationally, changes in sewage disposal practices from the current discharge of raw sewage directly or by infiltration into lagoons, to deep-sea discharge of treated sewage effluent or re-use by recharge, will have significant positive environmental impacts. The treated waste is relatively small in volume, and opportunity for dilution is large. Nevertheless, optimizing discharge location will mitigate any potential negative impact on the marine environment. Reuse, recycling, and composting will be encouraged through the formulation of a solid waste management strategy at the atoll level. Recommendations will be incorporated into the design of the solid waste management centers, in this way preventing soil and groundwater table pollution, as well as reducing or eradicating burning of waste and associated air pollution.

17. The land-planning component offers ample opportunities for an environmentally aware use of island land resources. It also provides an opportunity for the development of improved guidelines for the use, O&M of on-site sanitation. The proposed groundwater pollution investigation will provide valuable guidance for spacing drinking water and sanitation facilities. There are some minor and short-term potentially adverse impacts due to sanitation and solid waste management center construction, which are controllable through enforcement of appropriate construction contract conditions.

COST ESTIMATES AND FINANCING PLAN

Table A8.1: Cost Estimates and Financing Plan 42 ($ ‘000) Item Total Cost ADB Financed Government Appendix 8 8 Appendix FX LC Total FX LC Total LC Total A. Environmental Infrastructure . Civil Work 215 111 325 215 111 325 0 0 . Equipment 1,563 0 1,563 1,563 0 1,563 0 0 . Vehicles 68 0 68 68 0 68 0 0 . Construction Materials 777 0 777 777 0 777 0 0 . Study, Research, and Development 50 0 50 50 0 50 0 0 . International Consultants 260 0 260 260 0 260 0 0 . Domestic Consultants 0 24 24 0 24 24 0 0 Subtotal (A) 2,932 135 3,067 2,932 135 3,067 0 0 B. Planning and Environmental Management . Furniture 2 0 2 2 0 2 0 0 . Equipment 55 0 55 55 0 55 0 0 . Learning and Reporting Resources 4 4 9 4 4 9 0 0 . Local Training and workshop 45 0 45 45 0 45 0 0 . International Consultants 288 0 288 288 0 288 0 0 . Local Consultants 0 18 18 0 18 18 0 0 . Incremental Recurrent Cost 7 61 68 7 16 22 46 46 Subtotal (B) 400 84 484 400 38 438 46 46

C. Implementation Management and Capacity Building . Furniture 17 0 17 17 0 17 0 0 . Equipment 104 0 104 104 0 104 0 0 . Learning and Reporting Resources 5 5 9 5 5 9 0 0 . Study, Research, and Development 10 0 10 10 0 10 0 0 . Local Training and workshop 100 0 100 100 0 100 0 0 . Overseas Training 100 0 100 100 0 100 0 0 . International Consultants 943 0 943 943 0 943 0 0 . Local Consultants 0 177 177 0 177 177 0 0 . Incremental Recurrent Cost 89 805 894 89 205 295 599 599 Subtotal (C) 1,367 986 2,353 1,367 387 1,754 599 599

Continued on next page

Item Total Cost ADB Financed Government FX LC Total FX LC Total LC Total D. Contingencies 1. Physical contingency 391 100 491 391 47 438 54 54 2. Price contingency 88 26 113 88 12 99 14 14 Subtotal (D) 479 126 605 479 58 537 68 68

Taxes and Duties 0 787 787 0 0 0 787 787 Service charge during construction 204 0 204 204 0 204 0 0

Total 5,382 2,117 7,500 5,382 618 6,000 1,500 1,500 Notes: Physical contingency is estimated at 8.3 percent for civil works, equipment, furniture, construction materials and learning and reporting resources, training, consulting services, research and development, and project administration. Price contingency is estimated at an annual factor of 0.8 percent of both foreign and local project costs in dollar terms. Totals may not add due to rounding. Source: Asian Development Bank estimates. Appendix 8 43

Table A8.2: Financing Arrangements 44 ($ ‘000)

Appendix 8 8 Appendix Item Total CostADB Financed Government FX LC Total FX LC Total LC Total

A. Civil Works 215 183 397 215 111 325 72 72 B. Equipment Materials, and Furniture 2,594 723 3,318 2,594 9 2,603 715 715 1. Furniture 19 5 24 19 0 19 5 5 2. Equipment 1,722 474 2,196 1,722 0 1,722 474 474 3. Vehicles 68 19 87 68 0 68 19 19 4.Construction materials 777 215 992 777 0 777 215 215 5. Learning and reporting resources 9 11 19 9 9 18 2 2 C. Staff Development 245 0 245 245 0 245 0 0 1. Local training and workshop 145 0 145 145 0 145 0 0 2. Overseas study and training 100 0 100 100 0 100 0 0 D. Studies, Research and Development 60 0 60 60 0 60 0 0 E. Consulting Services 1,490 219 1,710 1,490 219 1,710 0 0 1. International consultants 1,490 0 1,490 1,490 0 1,490 0 0 2. Domestic consultants 0 219 219 0 219 219 0 0 F. Project Administration 96 866 962 96 221 317 645 645 Subtotal (A-F) 4,699 1,991 6,691 4,699 560 5,259 1,432 1,432

G. Contingencies 479 126 605 479 58 537 68 68 H. Interest Charges 204 0 204 204 0 204 0 0 Total 5,382 2,117 7,500 5,382 618 6,000 1,500 1,500 Percentage 72 28 100 72 8 80 20 20 Notes: Tax and duties, estimated at 10%, 20.0%, and 25.0% are included in applicable line items under Government finance. Physical contingency is estimated at 8.5 percent for civil works, equipment, furniture, construction materials, reporting learning and reporting resources, training, consulting services, research and development, and project administration. Price contingency is estimated at an annual factor of 0.8 percent of both foreign and local project costs in dollar terms. Totals may not add due to rounding. Source: Asian Development Bank estimates

Appendix 9 45

IMPLEMENTATION SCHEDULE

2005 2006 2007 2008 2009 2010 Item 1234123412341 2 3 4 1 2 341234 A. Environmental Infrastructure 1. Sewerage Improvement Systems

a. Preparation of IDPs, ADPs, and Land-Use Plans

b. Establishment of Water and Sanitation Cooperative

c. Surveys and Detailed Design

d. Construction of Septic Tank System

e. Construction of Reed Bed Treatment and Outfall

2. Rainwater Collection Tanks and Improvement to a. Gutters and Roof Structure

3. Integrated Solid Waste Management

a. Solid Waste Management Atoll Strategy b. Solid Waste Management Pilot Construction (Fonadhoo-Gan) c. Solid Waste Management Construction for Naifaru and Mahibadoo

B. Land and Environmental Management 1. Land Management Improvement

2. Regional Economic Development Study

3. Environmental Awareness

4. Environmental Monitoring

a. Health Hygiene and Sanitation Training b. Environmental Monitoring Program

c. Impact Study of Septic Tanks on Ground Water

C. Capacity Building and Implementation

D. Project Management 1. Project Performance Management System

2. Project Reporting

3. Project Review Missions

4. Project Midterm Review Mission

5. Project Completion ADPs = Atoll development plans; IPDs = Island development plans

46 Appendix 10

PROPOSED CONTRACT PACKAGING

Item Type Value Mode of Procurement

Consulting Services Consultant > $1,000,000 QCBS (Studies, Training, Design and Supervision, and Project Implementation)

Water Supply: Rainwater Collection Tanks Equipment ≥$500,000 ICB Rainwater Catchment Rehabilitation Civil Works < $15,000 Community-Based Procurement

Sanitation Material, (Combined Design and Supervision, Civil Works & >$1,000,000 ICB Supply, and Construction packages) Equipment

Solid Waste Management Equipment < $500,000 IS Vehicles < $100,000 DP Civil Works < $100,000 LCB

Environmental Monitoring Equipment < $500,000 IS

Office Equipment and Goods Equipment < $500,000 IS

Training and Awareness Campaigns Materials < $100,000 DP a Services < $100,000 DP

Community Mobilization Materials < $100,000 DP

DP = direct purchase, ICB = international competitive bidding, IS = international shopping, LCB = local competitive bidding, QCBS = quality- and cost-based selection. a Such services may include translation and services other than consulting. Source: Asian Development Bank estimates.

Appendix 11 47

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

1. Consultant input covers broad areas of expertise to (i) develop detailed project and financial management guidelines, procedures, and training manuals; (ii) develop environmental, gender, and participatory guidelines, and offer training in their use; (iii) assist the project implementation units (PIUs) to build up the capacity of the focus islands to implement the atoll and island development plans, which will support the implementation of the regional development program. Detailed terms of reference are available in Supplementary Appendix B.

2. Project Management Advisor and Team Leader (international, 24 person-months). The team leader will (i) assist the project management unit (PMU) and its project director to firmly establish the project institutional framework and administrative and management procedures according to Government and Asian Development Bank (ADB) guidelines; (ii) develop work plans and coordinate activities, budgets, and schedules for project activities; (iii) monitor planning and implementation, and recommend ways to streamline procedures; (iv) regularly meet senior Government staff involved in the Project, including steering committee members and external agencies, to solicit their active support of project activities; (v) assist the project director in other project matters as necessary, including producing project progress reports; (vi) assist in ensuring the timely establishment of PIUs; (vii) transfer project management and coordination skills to ensure that these capabilities exist in the PMUs and PIUs by the time inputs into the Project are completed, and advise on technical aspects and coordination of all Project activities related to water supply and sanitation, solid waste management and environment; (viii) develop quality control procedures, including technical specifications that can be easily implemented at island level and used by communities; (ix) develop course outlines for project training modules, and assist the PIUs in conducting orientation and island-based training related to water, sanitation, and solid waste management; (x) oversee the preparation of environmental studies and detailed design; (xi) prepare technical training packages and manuals; and (xii) develop a water quality monitoring program.

3. Environmental and Sanitation Engineer and Deputy Team Leader (domestic, 21 person-months). The specialist will (i) review and assess existing information in environmental monitoring at the national and regional levels; (ii) review and assess current technical capacity for environmental monitoring at national and regional levels; (iii) prepare, in consultation with the team leader, an environmental monitoring program to establish the pattern and trends in groundwater quality and salinity levels; (iv) conduct monitoring on the focus islands and identify additional islands where such a program can be extended; (v) oversee monitoring activities on the focus islands; (vii) advise on operational and coordination activities related to water supply and sanitation, solid waste management, and environment relating to technical design and construction; (viii) support the preparation of technical training packages and manuals for sanitation and sewerage and solid waste management facilities and provide associated training; and (x) based on technical training packages and manuals for sanitation and sewerage, and solid waste management facilities provide associated training.

4. Financial Management and Procurement Specialist (international, 12 person- months). The specialist will be responsible for setting up harmonized financial and administrative procedures for use in all project executing and implementing agencies. Specifically, the specialist will (i) design and implement an accounting system capable of consolidating the island implementation activities, (ii) create a management information system (MIS) that will capture all accounting data from the islands; (iii) design and implement an accounting system at the national PMU level to record and analyze the expenditures of the PMU; (iv) design and implement a reconciliation process for monitoring and analyzing receipts

48 Appendix 11 and expenditures from the main project account; (v) design financial reporting systems that meet both Government needs and ADB requirements, (vi) carry out adequate skills transfer to domestic consultants and counterpart staff; (vii) advise on disbursement procedures in accordance with ADB's Loan Disbursement Handbook (January 2001); (viii) develop model contracts and procedures for PIUs to recruit community-based organizations (CBOs) and private sector firms; (ix) train and assist PIUs in technical and cost proposal evaluation according to ADB and Government procedures and the use standard contracting procedures; (x) develop model procurement procedures for PIUs and cooperatives to procure goods and materials, and keep appropriate records for subsequent monitoring, audits, collection, and use of water tariffs; and (xi) support communities in the preparation of tariff methodology and structure for sanitation and solid waste management services.

5. Monitoring and Evaluation Specialist (M&E) (international, 4 person-months). The specialist will (i) based on assessment, draft a conceptual design of the MIS/M&E program; (ii) specify information that will be in project progress reports by institution; (iii) assess the quality and completeness of data gathered and its use by communities and project management; and (iv) train the M&E domestic consultant and counterpart staff.

6. Monitoring and Evaluation Specialist (domestic, 12 person-months). The specialist will (i) work with the PIUs, Ministry of Atolls Development (MOAD), and Ministry of Finance and Treasury (MOFT); (ii) establish monitoring parameters of project-related activities; (iii) oversee the establishment of a comprehensive monitoring database to meet the requirements of the Project; (iv) orient and train island M&E staff in monitoring procedures; (v) manage the M&E program, preparing periodic monitoring reports based on information collected at the island and atoll level; and (vi) manage project evaluations, reviewing and approving reports prepared under contract to others.

7. Community Mobilization and Social Development Specialist (international, 3 person- months). The specialist will (i) review the current organizational approaches to community management; (ii) design and supervise socioeconomic surveys to establish baseline information on communities; (iii) develop suitable educational materials for community training courses; (iv) provide training to domestic consultant, PMU, and PIU counterpart staff in participatory approaches to community management; (v) conduct needs assessment for community organization and prepare community action plans for the selected sites; and (vi) transfer community development skills to ensure that this capability exists in the PIUs.

8. Community, Gender, and Social Development Specialist (domestic, 20 person- months). The specialist will (i) assist in reviewing all project components (planning, implementation, and post-project activities) to ensure that all gender and disadvantaged groups issues are addressed; (ii) collect data and develop and monitor indicators on gender and disadvantaged groups integration and relay the information to the PMU; (iii) deliver training to communities for community organization in focus islands; (iv) provide assistance in the implementation and monitoring of community organization action plans; and (v) provide social development and gender outputs for the case study in economic development and planning for regional growth centers.

9. Environmental Awareness and Monitoring Specialist (international, 3 person- months). The specialist will (i) evaluate approaches currently used in island community health, hygiene and sanitation; (ii) develop operational guidelines and procedures on health sanitation and hygiene behavior change programs for Island Development Committees (IDCs), Women Development Committees (WDCs), and other CBOs working at the island level; (iii) develop Appendix 11 49 course outlines for the project health and sanitation-related training modules and train PIUs; and (vi) assist PIUs, IDCs, and WDCs in conducting orientations and island-based training related to health sanitation and hygiene behavior change.

10. Geohydrologist (international, 2 person-months). The specialist will (i) assess existing hydro-geological data in the Central Regions; (ii) conduct a technical hydro-geological study in a selected location and collect basic data regarding freshwater availability and distribution; (iii) assess optimal and minimal spacing required between both gray water and sewage and domestic wells which would prevent infiltration and pollution of freshwater resources.

11. Land-Use Planner (international, 5 person-months). The specialist will (i) review the planning guidelines approved in March 2004, and assess current capacity for implementation at national, atoll, and island levels; (ii) assess training needs and prepare a course program and educational materials for land-use management; (iii) conduct training of PMU, PIU, and line agencies; (iv) identify postgraduate education in town and country planning to enhance local capability; and (v) develop monitoring procedures to evaluate the positive environmental impact of land-use planning in atolls and islands.

12. Land-Use Planner (domestic, 7 person-months). The specialist will (i) support the international land-use planner in the development and delivery of training packages; (ii) support PMU and PIU staff in the collection of basic data and development of land-use plans over the first year of implementation; (iii) conduct regional training to enhance knowledge and understanding of land planning and its effect on islands’ activities; and (iv) undertake proposed monitoring procedures to evaluate the positive environmental impact of land-use planning.

13. Development Economist (international, 4 person-months. The specialist will (i) conduct a macroeconomic analysis focusing on economic information; (ii) conduct a livelihood analysis identifying sources patterns in terms of asset profiles and existing economic activities on selected islands; (iii) identify livelihood attributes, access to assets and services, and livelihood strategies; (iv) identify areas for economic development growth; (v) evaluate investment needs at the microfinance and household level; (vi) prepare packages for intervention and design relevant projects; and (vii) conduct a assessment of training and skill development needs.

14. Institutional Specialist (domestic, 2 person-months). The specialist will (i) conduct an institutional analysis for the case study in economic development and planning for regional growth centers; (ii) identify any potential conflict or opportunities resulting from the shared use of resources at island, atoll, and regional levels, focusing on policies, institutions, and processes to examine how they relate to one another and how they influence livelihoods, in order to make policy and institutions more pro-poor; (iii) explore relations between communities and formal institutions and the strength of institutions and role scope of control; and (iv) identify processes by which policies and institutions are made.

15. Solid Waste Management Specialist (domestic, 7 person-months). The specialist will (i) review best practice in the solid waste management; (ii) review practices, volume and type of waste generated; (iii) consider operation and maintenance requirements as part of technology selection, and define carefully objectives for site selection and coverage; (iv) recommend institutional arrangements for solid waste management to promote public participation at atoll level; (vi) evaluate financial options and implication for solid waste management at atoll level; (viii) formulate strategy for solid waste management at atoll level; (ix) undertake detail design for solid waste management centers for three focus islands; and (x) finalize packages for the solid waste management awareness and training campaign.

50 Appendix 12

ACTION PROGRAM AND PERFORMANCE CRITERIA FOR REGIONAL DEVELOPMENT

1. Citizen Awareness and Participation will be achieved through: (i) Building of information systems for the general public on regional development in the respective regions and its activities, (ii) Establishment of a planning unit supported by a full-time town planning expert in project implementation unit (PIU), (iii) Implementation of infrastructure inventory assessment and mapping, and (iv) Discussion and endorsement of the island and atoll development plans (complete with an updated land use plan) to be prepared by the planning unit with assistance from the Ministry of Atolls Development and the Maldives Housing Development Board.

2. Women’s Participation will be achieved through: (i) Delineation of responsibilities of the women’s development committee in each island community, (ii) Formation of gender and environment subcommittee headed by the women’s development committee, (iii) Component activities undertaken in accordance with the gender action plan (based on targets set by the project management unit, PMU), and (iv) Introduction of a monitoring system and report system on gender action plan (PMU will develop the system).

3. Integration of the Poor will be achieved through: (i) Preparation of an island-based poverty reduction action program, (ii) Organization of semiannual rallies and consultation on environment, water supply and sanitation, and solid waste management, (iii) Engagement of NGOs and CBOs for microcredit for poor and low-income women entrepreneurs, and preparation of a fund utilization plan by the implementing NGO, (iv) Delivery of health and education programs in the disadvantaged islands, (v) Leadership and skills training offered to poor women as envisaged in the poverty reduction action program, and (vi) Establish a poverty reduction program-based monitoring and report system.

4. Financial Accountability and Sustainability will be achieved through: (i) Regular payment of telephone bills, (ii) Regular payment of sewerage bills, (iii) Regular payment of solid waste management collection bills, (iv) Budget reservation for operation and maintenance (O&M), and (v) Computerization and improved reporting of accounting records

5. Administrative Transparency will be achieved through: (i) Development of adequate staff structure (according to the size and needs) with detailed job descriptions to enable the PIUs and atoll and island offices to undertake their obligations, (ii) Participation in training programs for elected and appointed officials at the atoll and island levels, (iii) Evaluation and monitoring by regional development management offices of the progress and quality of physical works, and (iv) Delivery of progress reports to PMU. Appendix 13 51

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis

Is the sector identified as a national Yes Is the sector identified as a national Yes priority in country poverty analysis? priority in country poverty partnership No agreement? No Contribution of the sector or subsector to reduce poverty in the Maldives:

Poverty in the Maldives stems primarily from regional disparities in living conditions related to remoteness of the islands and lack of infrastructure and social services in the atolls.1 A growing population in the atolls is becoming increasingly vulnerable. The Government’s sixth National Development Plan and Poverty Reduction Strategy places emphasis on balanced and equitable development. The Government’s two-pronged strategy involves the development of regional centers with good infrastructure and social services complemented by focus islands to serve as service hubs and growth centers. In parallel, special targeted income support programs will be established.2

Poverty reduction requires reducing persistent regional income inequality and non-income disparities. There is an acute lack of employment opportunities in the atolls. Existing income sources are also threatened due to environmental degradation. With regard to non-income inequality, there is a lack of access to electricity, transport, communications, education, health, potable drinking water, recreation facilities, and selected consumer goods; there is uneven quality of housing and the natural environment; and there is widespread incidence of food security and malnutrition in the atolls. Facilitating sustainable livelihoods, protecting current livelihood sources through environmental improvement, and the provision of basic infrastructure and social services in the atolls is clearly required to reduce poverty.

The Project will reduce poverty through three components: (i) improving environmental infrastructure covering sanitation and sewerage improvements, provision of rainwater tanks, and integrated solid waste management; (ii) strengthening planning and environmental management including integrated land-use planning and management, formulation of an economic development framework study for regional growth centers, developing environmental awareness programs, and environmental monitoring; and (iii) building management and implementation capacity covering community mobilization facilitation, and institutional strengthening.

The country’s island ecosystems are among the most vulnerable. Environmental problems are rapidly being manifested in the depletion and pollution of groundwater; 3 pollution of the coastal environment due to inadequate sewage and solid waste disposal; and marine resource depletion. Addressing environmental issues is crucial in island, atoll, and regional development. Environmental degradation can render an island uninhabitable, increase an island’s vulnerability to natural disasters, and have impacts on key economic sectors particularly tourism and fisheries.4 The Project will develop sanitation and sewerage systems, and integrated solid waste management in the focus islands. Many islands in the Maldives have run out of groundwater, and the little that they have is either saline or contaminated. One quarter of the population is reported to have no access to safe drinking water, and half of the population depends on rainwater as their source of drinking water. While rainwater is considered safe, the quality of rainwater tanks affect the quality of water. Households with no rainwater tanks use well water that may be contaminated with fecal coliforms. One fifth of the population does not use sanitary means of excreta disposal, and poor hygiene has significant implications on health and the environment.5 Protecting environmentally sensitive areas and resources in the island and ensuring sustainable levels of development will be supported by the Project through developing land-use plans in 24 islands.

The lack of capacities of local authorities and communities in the atolls and islands has constrained development. Due to this lack of capacity, the needs of communities in the atolls for social service and infrastructure development have been determined at the central level. Partnership with civil society and other stakeholders will be enhanced through the Project. It will facilitate decentralized decision making and community empowerment. Strong coordination and effective partnership to reduce disparities, particularly in the atolls, can address the high costs of infrastructure and social services.

A concerted effort to provide basic infrastructure for environmental improvement, and social services; environmental management; and integrated land-use planning and area development can promote private sector activities that will spur economic growth in the atolls.

1 ADB. 2002. Poverty Reduction in the Maldives: Issues, Findings, and Approaches. Manila. 2 World Bank. 2004. Integrated Human Development Project. Washington, DC.

52 Appendix 13

B. Poverty Analysis Poverty Classification

What type of poverty analysis is needed? Poverty Intervention

Both income and non-income poverty exists in the Maldives. While there is no official poverty line, a vulnerability and poverty assessment assessed income poverty using three poverty lines Rf7.5 ($0.59), Rf10 ($0.78) and Rf15 ($1.17).6 Using these thresholds, the resulting poverty headcounts are 15%, 22%, and 43%, respectively. The overall picture does not show the high degree of regional income inequality in the country. An estimated 70% of the population outside Male have incomes equivalent to only the least wealthy 20% in Male. In comparison with Male, the country’s capital, the ratio of incomes in Male compared with the atolls is 2:1, with the ratio increasing to 3:1 when lowest average per capita income is considered. There are also high degrees of inequality in terms of social and physical infrastructure and services. This inequality is estimated at 4:1 on average between Male and the atolls. In addition, poverty may further increase following the tsunami disaster.

The Project will be undertaken in the central, north central, and south central regions, comprising 124 islands in 13 atolls. Interventions will initially concentrate on the focus islands of Fonadhoo-Gan, Mahibadoo, and Naifaru whose populations in 2000 were 3,984; 1,714; and 3,707, respectively. These areas are considerably poorer than Male. Based on the 2000 census, while 44% of persons in Male had incomes less than Rf500 per month, the percentages in Fonadhoo, Mahibadhoo, and Naifaru were 64.2%, 63.7%, and 57.8% respectively. The focus islands are characterized by high dependency ratios (80−100 compared with 81 in Male); low levels of employment (52−55% on average with females at lows of 33−36% compared with males at 72−77%); and lack of access to education beyond grade 10. With the exception of Mahibadhoo, the focus islands experience negative net migration reflecting the lack of jobs.

The focus islands have a high dependence on rainwater as a source of drinking water (86−99%) and generally consume water that is not treated (78-98%). With regard to sanitation, in Fonadhoo and Gan, while 70% and 45% have toilets connect to septic tanks or latrines, 15% and 28% use areas of the beach as toilets. In Naifaru, 84% have toilets connected directly to the sewer and to the sea, while 2.1% are connected to septic tanks or latrines.

During project preparation, a survey of 158 households which shows further non-income aspects of poverty related to the interventions proposed under the Project. The survey shows that water shortages were experienced for 0.3 to 2 months in the project focus islands. Among those who used public rainwater tanks, or mosque or public wells as a water resource, an average of 2-3 trips per day were made to fetch water. Some respondents reported that there were problems in drinking water quality such as taste, bad odor and color. Respondents proposed the provision of rainwater catchments and tanks to more households. The survey reflects a lack of proper sanitation in the project focus islands. In Fonadhoo and Mahibadhoo, most toilets are connected to septic tanks or latrines. However, there are households without toilet facilities in Fonadhoo and Gan. As many as 13% and 21% of respondents reported using the beach as toilets in Fonadhoo and Gan, respectively. The surveys show that households strongly felt that groundwater is being depleted and becoming contaminated due to bad sewerage systems. Households had different responses to the question on solid waste disposal. In Naifaru, all respondents reported discharging into designated areas. In Mahibadhoo, 58% reported discharging in designated areas and there was a large proportion which burned solid waste. In Fonadhoo and Gan, a large percentage—63% and 41%, respectively—discharged solid waste on beaches or areas of dense vegetation.

3 Soil is poor and highly porous, hence infiltration of rainwater is often immediate, with rainwater forming a lens that floats on the saltwater table that rises and falls with the tide. This lens is the only source of water on small coral islands. Susceptible to rapid depletion and pollution caused by human activities. Exhaustion or contamination can cause irreparable damage rendering an island unfit for human habitation. 4 About 18% of the total labor force is engaged in primary fishing activities. It is the second largest Maldivian employment category after government. The vulnerability and poverty assessment analysis on the distribution of sectoral employment indicates that 98% of employment in the fisheries sector is found in the atolls, where it is the biggest employer. Fishing remains the biggest employing activity in the outer island and is central to any poverty strategy. 5 There is a very high incidence of intestinal parasite infestation. This affects 50–75% of children below 5, and is linked to poor sanitation and to lack of potable and safe water supply on many islands. 6 United Nations Development Programme and Ministry of Planning and National Development. 1998. Maldives: Vulnerability and Poverty Assessment. Published by Ministry of Planning and National Development and United Nations Development Programme, Malé. Appendix 13 53

C. Participation Process Is there a stakeholder analysis? Yes No

Stakeholders include residents in the islands, island level community-based organizations (island development committee, women’s development committee, and other organizations to be formed for maintaining sewerage and sanitation, and solid waste management facilities), atoll development committees, government agencies (ministries of finance and treasury, atolls development, construction and public works, planning and national development; Maldives Housing and Urban Development Board; Maldives Water and Sanitation Authority); and multilateral organizations. Roles, responsibilities, and interests have been identified.

Is there a participation strategy? Yes No

The Project is designed to undertake all components in a participatory manner, involving communities at the center of regional development. Communities do not have the strong absorptive capacity of communities needed to implement and sustain the project components. Civil society should partner with the Government. It is necessary to define a clear role for community-based organizations (CBOs) so that the sector does not expand in an ad hoc, uncoordinated manner. A component of the Project will facilitate the mobilization of communities to form CBOs. As a channel for empowering people, community-based organizations can address a perceived need and common interest within the community bringing large benefits, particularly in terms of social capital formation (development of a group-based capacity to solve problems). Mobilizing CBOs and coordinating effective partnership with the Government will reduce the high cost of infrastructure and social services in the atolls.

D. Gender Development

Strategy to maximize impacts on women:

Uneven regional development has increasingly disadvantaged women. Women will be beneficiaries in the Project primarily through improved living conditions at home, reduced burden for solid waste management and water collection, and reduced risks from certain diseases and related costs. Women can play an important role in implementation. The Project can provide women access to decision-making structures, jobs, income-generating activities, and opportunities to instigate and manage activities related to the Project’s components. A gender action plan has been developed, describing targets to promote women’s active involvement.

Has an output been prepared? Yes No

E. Social Safeguards and other Social Risks

Item Significant/ Plan Required Not Significant/ Strategy to Address Issues None Significant In focus islands where water supply, and sanitation and Full sewerage infrastructure will be provided, rainwater tanks Resettlement Not significant and septic tanks will be constructed within house plots. Short The sanitation and sewerage infrastructure, and solid None waste improvements will make more space available in None house plots by removing the need for wastewater soak pits and reducing the need for solid waste storage. Common facilities for wastewater and solid waste treatment will be constructed in vacant areas allocated by the Government in accordance with the island’s land use plan. The Government has assured that should the Project result in unavoidable involuntary resettlement, a resettlement plan will be made in accordance with ADB’s policy on involuntary resettlement. The Project has been designed according to established Significant practices on cost recovery. While there are no significant Yes Affordability affordability issues identified, the Project will ensure that Not significant project design will incorporate any need for mechanisms No to ensure the poor will benefit from project components. None

54 Appendix 13

The Project will support labor-based cost-effective Significant technology for environmental infrastructure. Employment Yes Labor will be generated for construction, and operations and Not significant maintenance activities. No

None There are no ethnic minorities or indigenous people in the Significant project area. Yes Indigenous Peoples Not significant No

None Project implementation will require community support Other Risks Significant and coordination between the community and the Yes and/or Government. The Project will facilitate community Vulnerabilities Not significant mobilization for community based organizations which will No be involved in designing, implementing, operating, and None maintaining project components. Appendix 14 55

ECONOMIC AND FINANCIAL ANALYSES

A. Introduction

1. The Project has three closely interrelated components: (i) environmental infrastructure, (ii) planning and environmental management, and (iii) management and implementation capacity building. The economic and financial analyses concentrate on evaluating the direct impact that the environmental infrastructure component will have on the Central Regions’ economy by (i) improving sanitation and sewerage, (ii) supplying safe drinking water, and (iii) providing an integrated solid waste management system. In addition to these quantifiable benefits, the Project is expected to have substantial nonquantifiable benefits due to improved health, welfare, and amenities, community mobilization, training, and gender-related activities.

2. The economic analysis has been conducted following the Guidelines for the Economic Analysis of Projects of the Asian Development Bank (ADB). Financial sustainability of the subprojects was assessed based on the Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank. A least-cost analysis was undertaken for the sanitation and sewage treatment subcomponent while a cost- benefit analysis was carried out for the sanitation and sewage treatment, solid waste management, and water supply subcomponents. The subprojects are evaluated over 20 years, with no salvage value assumed thereafter.

B. Approach and Methodology

3. Quantifiable benefits and costs were examined based on comparison of the with- and without-project scenarios. Financial prices used in the analyses were identified through survey information from the project area, as described in the feasibility study, or provided by the Government. Economic prices were derived as follows:

(i) an exchange rate of $1 = Rf12.75 has been applied throughout; (ii) prices are based on 2004 prices and adjusted in financial costs using an annual domestic inflation rate of 1% and World Bank index projections for foreign costs; (iii) economic analysis is made at constant 2004 prices; (iv) economic analysis excludes taxes and duties; (v) economic prices use the domestic price numeraire and a standard exchange rate factor (SERF) of 1.11 is applied to the price of tradable goods; (vi) the economic life of the project is taken as 20 years including 5 years project implementation; and (vii) all plant, equipment, and furniture are assumed to be replaced on average every 10 years through the project life.

In addition, it must be highlighted that the analyses below were conducted based on willingness to pay collected in 2004. Although tsunami affected communities may encounter difficulties in paying user fees in the short term, their ability to pay is expected to be restored by the time the Project is completed.

C. Economic Analysis

1. Water Supply

4. The water supply subcomponent will provide a rainwater collection credit component program to assist individual households in the Central Regions to purchase 2,500-liter rainwater

56 Appendix 14 storage tanks, increasing the ability to meet their needs during dry periods.1 Credit will be provided in the form of a revolving fund and repaid by households at zero interest cost. The subcomponent will increase the stock of drinking water available to cover dry periods, providing 11.5 additional days of consumption at the observed daily per capita consumption of 36 liters in the target atolls. A study of rainfall patterns in Laamu Atoll2 indicates that dry periods of 4 or more days account for 172 days per year distributed (Table 14.1).

Table A14.1: Dry Periods and Opportunity Cost of Drinking Water

Item Probability Dry Period Days 4 to 5 6 to 8 9 to 11 12 to 14 15 days + Days Per Year 45.45 43.40 20.00 22.10 41.20 Maldivian Rufiyaa per liter 0.04 0.06 0.08 0.10 0.10 Probability of Tank Supplies 1.00 0.75 0.50 0.25 0.00 Source: Asian Development Bank estimates.

5. Economic benefit calculations were based on the following computations: (i) displaced cost of desalinated water sold ex-standpipe at Rf2 per 20 liter container (Rf0.1/liter)3 during such dry periods, and (ii) displaced marginal transportation costs. 4 On this basis, the rainwater tanks will prove strongly viable. Under the above assumptions, a financial internal rate of return (FIRR) of 29%, and economic internal rate of return (EIRR) of 26% were calculated for each individual tank. Lags between repayment of loans and relending by the fund are expected to be short, but will reduce the overall EIRR to 24.9%. Non-repayment will reduce the size of the funds for reinvestment rather than reduce the rate of return.

6. It is assumed that the provision of safe drinking water will be responsible for substantial improvements in health, the economic benefits calculations allow for further computations for (i) displaced waterborne diseases health treatment costs (averaged at Rf400 in surveyed focus islands); (ii) displaced loss of income resulting from acute diarrhea and waterborne disease symptoms,5 yielding an revised EIRR of 35%.

7. Assuming a 90% repayment rate with installments over 5 years, the funds provided by the project will directly finance 2,750 new water tanks and reuse in the revolving fund is expected to finance a further 10,000 over the 20-year project period. Under these circumstances, the FIRR for each individual beneficiary will be much higher, up to 60% with interest-free installments over 5 years.

2. Sanitation and Sewage Treatment and Disposal

8. The sewerage and sewage treatment subcomponent is designed to collect, treat, and safely dispose of domestic wastewater from the two selected islands. A least-cost analysis was carried

1 Yearly water shortages range from 35.5% in Fonadhoo to 54% in Mahibadhoo. Periods can be up to 2 months. 2 2001. Special Programme for Food Security in The Maldives, Food and Agriculture Organization, Male. 3 This price is assumed to apply in long dry periods. The value of tank water at the beginning of dry periods is less and assumed to be 40% of this level on the 4th and 5th days of dry spells, increasing to Rf 0.1/liter from the 12th dry day. In the without-tank case, the existing storage will provide water for the first few days, and incremental supply is assumed to arise from the 4th day. At the 36 liter per capita consumption rate identified in project preparation, the 2,500 liter tank would be emptied in 11 days, and the with-project combination of existing and new storage is assumed to be emptied by day 15, leaving 41 days per year without tank supplies. The tank is not always full when dry periods begin and the probability of the tank being able to supply water is assumed to decline. 4 Additional transportation costs are incurred. However, given that cost is not wholly attributable to water supplies and involves purchase of other goods, this is considered to be negligible. 5 Diarrhea and waterborne disease are reported to affect 9.5% of the population. Loss of workdays due to the waterborne diseases was reported in the socioeconomic surveys to be equal to 7%. Appendix 14 57 out for the Naifaru6 sanitation and sewage treatment subcomponent, where the following options were examined: (i) settled effluent sewerage system, including reed beds and sea outfall principally; and (ii) a conventional sewerage system, including a sewer network, wastewater treatment package plants and a sea outfall. The least-cost analysis demonstrated that the first option was the best option. Based on engineering design criteria and the findings from the Naifaru study, settled sewerage facilities for the treatment of liquid waste for Mahibadoo and Fonadhoo were selected.

9. Capital costs and incremental operation and maintenance (O&M) costs for each subproject have been considered. Cost-benefit analysis computations for the settled sewerage systems are based on (i) surveyed willingness to pay; and (ii) benefits associated with the provision of alternative sources of water for non-drinking purposes, such as irrigation, livestock drinking, and toilet flushing. Cost-benefit calculations appear weak when based exclusively on the willingness-to- pay survey undertaken during the survey. This reflects (i) the absence of reported charges for sewerage services in the Maldives,7 and thus, the absence of real context in which respondents could frame their answers and; (ii) the necessity to review and develop further willingness-to-pay expressions to account for the large proportion of the population that would be willing to pay more that Rf125, given that when solely based on charges, an estimated minimum of Rf300 (for Mahibadoo) would be required to recover costs.

Table A14.2: Sewerage Improvement: Willingness to Pay

Willingness-to-Pay Rates Mahibadhoo Fonadhoo / Gan Combined Systems (Rf per household per month) (%) (%) (%) Rf >125 58.3 75.0 66.7 Rf 65–124 41.7 18.8 30.2 Rf < 65 0.0 6.2 3.1 Source: Capacity Building for Regional Development Project, Phase II PPTA Survey.

10. Islands commonly use simple irrigation8 in home gardens with multi-storey cropping systems, producing fruits and vegetables for household food security and for sale. When estimated benefits gained from the reuse9 of treated water for irrigation of basic agriculture systems, such as home gardens providing essential products for consumption at household level, hydroponics, livestock or appropriate household needs such as flushing toilets, are used in the cost-benefit analysis alongside willingness-to-pay values, an overall EIRR of 3.5% is obtained. Improved sewerage and sanitation benefits include nonquantifiable benefits in terms of health, welfare, and amenities, requiring sewerage development in the environmentally fragile context of small coral islands with increasing populations.

3. Integrated Solid Waste Management

11. The principal thrust of this subcomponent is to halt and reverse environmental degradation

6 An investment proposal was initially put forward for this island. A reduction in the project scope and resources has postponed investment activities. A comparison of average incremental economic costs initially computed in the feasibility study showed settled sewerage values to be 85% of those for conventional sewerage. 7 In Male, sewerage tariffs are jointly charged with the water supply charges. This approach is not possible for the purely sewerage services proposed. 8 Islands commonly use simple irrigation in home gardens with multi-storey cropping systems, producing fruits and vegetables for household food security and for sale. With limited land and water, Government is promoting higher value agriculture, including hydroponics. 9 Market information or WTP data regarding benefits from water reuse could not be obtained for the Maldives and therefore typical information from existing elsewhere schemes has been used. This includes the following assumptions: (i) losses to evaporation are less than 20%, (ii) estimated demand for treated water of at least 70%, (iii) MRf 0.01 per liter = value of treated water.

58 Appendix 14 caused by inadequate solid waste management practices in the atolls. Solid waste management centers for Naifaru, Mohibadoo and Fonadhoo-Gan are envisaged under the Project, where most waste generated in the islands and atolls will either be reprocessed and stored for local use (composting of greens, recycling and reuse of inerts), or stored for transshipment.

12. Cost-benefit calculations were based on (i) the value of recycled materials and (ii) proposed user charges. User charge values were obtained from Government sources, currently in the process of introducing solid waste management fees of Rf 50 per household per month in developments in the Northern and Southern Regions, indicating an overall willingness to pay. Assuming that some unwillingness to pay, collection of charges were limited to 80%.

Table A14.3: EIRR and Sensitivity of Solid Waste Developments

Item Combined Naifaru Mahibadhoo Fonadhoo / Gan Centers Main Parameters, 2005 Households 683 339 921 1,943 Waste Generated (tons) 1,162 538 1,107 2,807 Base Case NPV @ 12 % ($) 62,821 (-83,389) (-27,959) (-39,593) EIRR 29.4% neg. 8.2% 9.0% Collection % @ Rf 50 100% 40.0% neg. 15.5% 17.2% 90% 34.8% neg. 12.0% 13.3% Base = 80% 29.4% neg. 8.2% 9.0% 60% 18.2% neg. neg. neg. 50% 12.0% neg. neg. neg. Charge @ 80% collection Rf100 70.9% 11.8% 33.6% 37.3% Rf 60 37.9% neg. 14.2% 15.7% Rf 56 34.6% neg. 11.9% 13.2% Base = Rf 50 29.4% neg. 8.2% 9.0% Rf 40 20.6% neg. 0.6% 0.2% Rf 31 11.7% neg. neg. neg. PV of Cash Flows @ 12% $ Value of Recycled Waste 115,635 53,464 96,154 265,253 Household Charges 130,472 69,190 175,898 375,561 Site O&M Costs (-145,633) (-157,213) (-168,883) (-471,729) Capital Cost (-100,025) (-92,543) (-242,141) (-434,709) Revenue/Variable Cost 169.0% 78.0% 161.1% 135.8% O&M = operation and maintenance, PV = present value, Rf = Maldivian rufiyaa. Source: Asian Development Bank estimates. Notes: Capital cost includes replacement of all mechanical and electrical equipment after ten years. Figures in bold indicate switching values—the value at which the EIRR equals the opportunity cost of capital (12%).

13. The estimated average EIRR for this component is 9%. EIRRs are sensitive to changes in charges and collection, in the analyses above the sensitivity indexes for changes in rates and changes in the collection percentage are each around 3. The analysis for Naifaru suggests that this level of charge and collection may not be necessary for viable operation as the Naifaru center, producing and EIRR of 29% at these rates, which well beyond the needs of cost recovery. Neither of the other two sites, as proposed, is comparable. Fonadhoo−Gan development includes transfer stations serving some 920 households on two islands but can be extended to serve more of the 2,200 households on Laamu Atoll. Similarly, the present designs for the other centers are not intended to be final as the center's are ultimately intended to serve the atolls rather than a small number of islands. This will be addressed and finalized in the development of atoll level solid waste management strategies under the project. Under such circumstances, the Mahibadhoo waste management center would appear to be economically viable (EIRR = 12%) by doubling the Appendix 14 59 number of households served in the Alif Dhaal Atoll.

4. Overall Environmental Infrastructure Component

14. The environmental infrastructure component includes subcomponents with differing degrees of economic viability and an overall EIRR for the component of 18.7%. Two of the three subcomponents are below the 12% opportunity cost of capital, but further development of the solid waste subcomponent, facilitated by the Project, is likely to raise that activity above 12%.10 Neither the planning and environmental management component nor the management and implementation capacity-building component have directly quantifiable benefits. Their benefits are in the form of the increased effectiveness of planning and implementation of Government programs, as well as increased institutional capacity. The rainwater tanks subcomponent is the most viable and the least sensitive to adverse changes. The solid waste subcomponent is sensitive, with an sensitivity index of 6, but this indicates the potential for further development of the Mahibadhoo and Fonadhoo−Gan centers, as envisaged in the context of development of atoll strategies, to make these activities as comparably viable as Naifaru's solid waste program.

Table A14.4: Summary of EIRR and Sensitivity Indexes

Combined Base Case Costs + 10% Benefits - 10% Item Changes EIRR EIRR SI EIRR SI EIRR (%) (%) (%) (%) Water Supply 35.0 31.3 1.1 31.0 1.2 27.6 Solid Waste Management 9.0 3.6 6.0 3.0 6.7 -3.9 Sanitation and Sewerage 3.5 2.0 1.9 1.1 2.1 0.6 Environmental Infrastructure 18.7 16.4 1.6 16.0 1.8 13.8 EIRR = economic internal rate of return, SI = sensitivity index. Source: Asian Development Bank estimates.

D. Financial Sustainability

15. Though full cost recovery has not been set as a specific target, it is intended that O&M costs be funded by users either through user charges or through communal O&M of facilities. The surveyed willingness to pay for the sewage treatment subcomponent indicates that charges could raise amounts of $35,000 to $40,000 per year to cover the estimated annual community based O&M costs of $30,000 at Mahibadhoo and $40,000 at Fonadhoo. The rainwater tanks will be the responsibility of each individual borrower from the revolving fund and it is expected that the high value of the water storage will ensure that the tanks are well maintained. Training will also be provided under the Project. The present values in Table A14.3 indicate that the projected revenues for solid waste management at Naifaru and Fonadhoo−Gan will exceed the O&M costs—including replacement of all equipment after 10 years—by over 60%. The atoll strategies to be developed under the Project will ensure that, as well as engineering and environmental concerns, financial issues are addressed. The three project activities requiring on-going O&M appear to be financially sustainable without project or Government funding. Detailed methodology for tariff structure and tariff collection and administration will be developed under the Project for the sanitation and solid waste management components.

16. Proposed monthly charges to households of Rf50 for solid waste management charges represent approximately 1% income for both Mahibadoo and Fonadhoo−Gan, as are the proposed

10 This likelihood is supported by the existence of more households to serve; capacity of centers to process their waste; resulting increase in income from recycling and potential income from charges; and high sensitivity of the EIRR to changes in benefits and income.

60 Appendix 14 repayment cost of the rainwater tanks, also estimated at Rf50. However, similar expenditure for Naifaru, where incomes are lower than average, represents a larger expenditure percentage. Based on Rf 125 user charge for sanitation and sewage treatment in Mahibadoo and Fonadhoo, average expenditures of approximately 2.5% have been computed. The affordability analysis indicates that the charge levels are affordable to domestic users in the latter islands, based on the generally accepted principles that the sum of the charges for water, sanitation, and sewerage and solid waste services should not exceed 6%. It is recommended that proposed charges of Rf125 for sewage treatment be reviewed under the Project.

Table A14.5: Affordability Analysis

Item Mahibadhoo Fonadhoo Naifaru Average household monthly income (Rf) 4,620 5,040 2,310 Average Expenditure: Water Supply (%) 1.1 1 2.2 Average Expenditure: Solid Waste Management(%) 1.1 1 2.2 Average Expenditure: Sanitation & Sewage Treatment (%) 2.7 2.5 — — = not available. Source: Capacity Building for Regional Development Project, Phase II PPTA Survey.

E. Unquantified Benefits

17. Environment and Water Resources. Rainwater tank storage will provide additional safe drinking water and protect the water lens by reducing water extraction and sources for replenishment. Sanitation, sewage treatment, and integrated solid waste management will prevent degradation of groundwater resources and the marine environment.

18. Health. The health benefits of the Project, arising from a reduction in costs11, will be significant. In addition to waterborne diseases, considered in the benefit analysis, integrated solid waste management will reduce burning of waste, and pest incidence, leading to reduced incidence of respiratory and insect and rodent-related diseases.

19. Institutional Development, Organizational Benefits. The implementation of the Project will help improve the capacity of central and regional agencies, and provide a solid foundation for mobilization and organization of communities to undertake O&M functions.

20. Employment. The direct increase in jobs through the creation of cooperatives has been mentioned. In addition, the Project will provide environmental improvements and enhanced capacity for environmental management, necessary for preserving the marine environment of the Maldives. It is expected that such improvements will lead to employment through increased tourism development and sustain and promote fishing activities for income and food security.

21. Gender. There are almost twice as many men as women in the Maldivian work force. The Project endeavors to enhance women’s involvement, train women and increase their contribution in income generating activities. The Project will provide opportunities for women to take a leading role in O&M of utilities and increased agricultural production resulting from increased water availability.

11 In 2001, health expenditure was estimated at $263 per capita, or 6.7% of (GDP).