Lao People s Democratic Republic: Strengthening Urban Water Supply Regulation

Transcription

1 Technical Assistance Report Project Number: Capacity Development Technical Assistance (CDTA) November 2011 Lao People s Democratic Republic: Strengthening Urban Water Supply Regulation The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.

2 CURRENCY EQUIVALENTS (as of 27 October 2011) Currency Unit kip (KN) KN1.00 = $ $1.00 = KN8,020 ABBREVIATIONS ADB Asian Development Bank DHUP Department of Housing and Urban Planning Lao PDR Lao People s Democratic Republic MIREP Mini-Reseaux d Eau Potable MPWT Ministry of Public Works and Transport NPNL Nam Papa Nakhone Luang PCU project coordination unit PNP provincial nam papa (provincial water supply utility) PPP public private partnership RIA regulatory impact assessment TA technical assistance WASRO Water Supply Regulatory Office WSRC Water Supply Regulatory Committee TECHNICAL ASSISTANCE CLASSIFICATION Type Capacity development technical assistance (CDTA) Targeting General intervention classification Sector (subsector) Water supply and other municipal infrastructure and services (water supply and sanitation) Themes (subthemes) Capacity development (institutional development), environmental sustainability, private sector development (public private partnerships), governance (economic and financial governance) Location (impact) Rural (low), urban (high), national (high), regional (low) NOTE In this report, "$" refers to US dollars.

3 Vice-President S. Groff, Operations 2 Director General K. Senga, Southeast Asia Department (SERD) Director A. Leung, Urban Development and Water Division, SERD Team leader Team members Peer reviewer A. Jain, Senior Social Sector Specialist, SERD L. Balicanot, Project Analyst, SERD P. Chanthirath, Senior Project Officer (Infrastructure), SERD A. Senador, Operations Assistant, SERD M. White, Urban Development Specialist (Water Supply and Sanitation), SERD R. Frauendorfer, Lead Urban Development Specialist, SERD In The preparing views expressed any country herein are program those of the or consultant strategy, and financing do not necessarily any project, represent or by those making of ADB s any designation members, Board of or of Directors, reference Management, to a particular or staff, territory and may or geographic be preliminary area in nature. in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

4 I. INTRODUCTION 1. During the country program mission in 2010, the Government of the Lao People s Democratic Republic (Lao PDR) confirmed its request for technical assistance (TA) to support the capacity development of urban water supply regulation. On 27 April 2011 the chair of the Water Supply Regulatory Committee (WSRC) reaffirmed this request. An Asian Development Bank (ADB) TA factfinding mission visited Vientiane in the Lao PDR during September 2011 and reached an understanding with the government on the TA impact, outcome, outputs, implementation arrangements, cost estimates and financing arrangements, and terms of reference. The TA is in line with the Lao PDR water supply, sanitation, and other municipal infrastructure and services assessment, strategy, and road map, and the Water Operational Plan. The design and monitoring framework is in Appendix 1. 1 II. ISSUES 2. Based on its population distribution, the Lao PDR is predominantly a rural country. In 2005 it had a population of 5.62 million and an estimated population growth rate of 2.1%. By 2020 the population is expected to reach 7.26 million people. 2 About 73% of the population lives in nearly 12,000 small rural villages, with the remaining 27% in urban centers or towns. About 42% of the urban population lives in 140 small towns of 2,000 20,000 people, and only 10 urban centers have a population of more than 20,000 people, with an estimated 754,000 people in Vientiane Capital City. Access to piped water supply is estimated at 45% in urban areas and around 21% in small towns. These urban areas are relatively small with low population densities; hence, they have not experienced the range of problems that are associated with urbanization in other parts of Asia. However, the situation is changing as urban centers are increasingly linking rural areas to wider economic markets, and improvement in urban centers is central to balanced regional socioeconomic development, poverty alleviation, and tourism development. 3. In the Lao PDR the urban water supply sector was decentralized to the provincial level in 1999 and consists of 16 provincial nam papas (water supply utilities [PNPs]) and Nam Papa Nakhone Luang (NPNL) in Vientiane Capital City. 3 The utilities are state-owned water supply enterprises, which under the Enterprise Law are required to perform as corporate entities. In recent times some water utilities have taken a number of steps to improve their operational efficiency and financial performance: (i) Out of 17 water utilities, four are implementing approved corporate plans. 4 (ii) Some water utilities have implemented a free connection policy during construction of water supply systems to help attract new consumers and eliminate a monetary barrier to access for many households, especially the poor. The average cost per connection is $150, which may be higher post-construction. The connection cost is essentially amortized through the tariff. (iii) All 16 PNPs adjusted tariffs in 2008 in accordance with the recommendation of the WSRC of 3-year annual adjustments based on full cost-recovery principles. 5 1 The TA is listed as firm for 2011 in ADB Country Operations Business Plan, Lao People s Democratic Republic, Manila, and first appeared in the business opportunities section of ADB s website on 5 October Based on the 2005 population census, the Lao Statistics Bureau estimated a 2010 total population of million people with an annual population growth rate of 2.2%. Last accessed information online on 23 September Available at 3 Prime Ministerial Decision No. 37 on Management and Development of Water Supply and Wastewater Sector, 30 September These include a mission statement and corporate objectives; performance standards, indicators, and targets; tariffs; market analysis; PNP management and organization; an action plan; a 3-year financial forecast; and a capital investment program for staged water supply development. 5 Specific tariff levels are available in WSRC Annual Urban Water Sector Performance Report, Vientiane.

5 2 (iv) (v) Some PNPs are working with provincial governments to improve their arrears collection, especially from government agencies. Some PNPs have entered into a memorandum of agreement with provincial governments. These concession-type contracts help to regulate the price and supply of water at the local level (e.g., 24-hour continuous supply). 4. While water utilities are slowly transforming into profit-making corporatized business entities, a stronger regulatory body and effective sector regulations are needed to help (i) monitor the price of supplied water and quality of service, and (ii) consult with the public on the rationale for why a water enterprise needs to operate as a sustainable and efficient business. In addition, measures such as a telecommunication-linked consumer complaints system can help PNPs manage consumer complaints before problems are elevated to the national level. Since 2009, the NPNL has established a call-in hotline in Vientiane Capital City to which customers can call and report a leak or register a complaint. Similarly, meaningful consultations can help PNPs ensure consumers are fully informed (e.g., prior to annual tariff adjustments). 5. Since 1999, the government has made considerable efforts in establishing a regulatory environment. In 2008 the WSRC (and its secretariat, the Water Supply Regulatory Office [WASRO]) was established, 6 and became operational with its first meeting in March Since then it has held biannual meetings. The WSRC consists of 10 members (two of them women), including government officials and representatives from industry and consumers. There are 13 WASRO staff (23% of them women). Prior to 1999, the government prepared key financial, management, technical, and regulatory accounting guidelines; facilitated private sector water supply initiatives; carried out 3-year tariff reviews in 2004 and 2007; and published regular annual performance reports, which include regulatory reporting and comparisons over time of public accountability performance. However, a number of these guidelines still remain in draft form and require a review based on the 2009 Water Supply Law and its implementation decree (forthcoming). The potential impact of these regulations on the business environment in the sector in accordance with the 2005 Enterprise Law and 2009 Law on Investment Promotion is also not fully understood. Through TA 7612, 7 ADB is helping to support regulatory impact assessment (RIA) a systematic appraisal of costs and benefits associated with a proposed new regulation and evaluation of the performance of existing regulations The current support for state-owned enterprise reform and growing support for private sector participation in the Lao PDR requires that the interests of both the consumer and operator (public or private) are protected and managed. The existence of a national regulator and rules for determining tariffs is helpful as it promotes predictability and consistency in the investment environment, primarily with regard to tariffs and water quality. In 2008, ADB technical assistance found that informal small providers or cooperatives operate piped water systems with individual house connections in 30% of small urban centers. These informal systems usually supply untreated water to villages at low pressure in areas not serviced by PNPs. In 2010, financing support from the ADB Water Financing Partnership Facility helped to complete a rapid assessment on the sector readiness for public private partnerships (PPPs). The assessment found that, while the urban water supply sector in the Lao PDR is not fully ready to implement PPP projects on a large scale, it has in place the basic framework required for initiating the process of engaging with the private sector. Small-scale PPP projects have been supported by Mini-Reseaux d Eau Potable (MIREP) 9 and the United Nations Human Settlements Programme. The 6 Prime Minister's Decree No. 191/PM, dated 1 July 2005 on Regulation of Urban Water Supply Operations, and MPWT Decision No /MPWT, dated 22 October 2008 on the establishment of the WSRC. 7 ADB Technical Assistance for Support for Post-Private Sector and Small and Medium-Sized Enterprises Development Program Partnership Framework. Manila (TA 7612-LAO). 8 Kirkpatrick, C., Parker, D., and Zhang Y. F Regulatory Impact Assessment in Developing and Transition Economies: A Survey of Current Practice. Centre on Regulation and Competition Working Paper Series, No. 83. Manchester. 9 The MIREP program is supported by a number of partners, including Groupe de Recherche et d'echanges Technologiques (a French nongovernment organization), and the French water utility for the Paris region (SEDIF).

6 study recommended a number of key action areas which would help in creating an enabling and conducive environment required for catalyzing private investment in the sector. 7. The TA will support the government to strengthen its capacity in sector regulation. Water utilities, as corporate entities, are beginning to change their corporate structures to operate more efficiently under the Enterprise Law. They are likely to adjust tariffs to match the cost of supplying clean and drinkable water. The WSRC, as an autonomous institution, is new and further awareness raising is still needed. In addition, private sector interest in urban water supply has increased over the past few years, with joint-stock venture groups established in Vientiane and Savannakhet provinces for providing bulk water supply to water utilities and small-scale private operators interested in cooperating with PNPs to expand access to piped water supply. As such, a strong and knowledgeable regulatory body is needed with the capacity to (i) advise water utilities on joint-stock venture contracts for bulk supply and/or concession contracts with small-scale private investors for extension of distribution systems; (ii) monitor the performance of public water utilities and private water operators in urban areas; (iii) ensure urban residents receive quality, reliable, and affordable water supply; and (iv) enforce sector regulations and standards. A. Impact and Outcome III. THE TECHNICAL ASSISTANCE 8. The expected impact of the TA will be improved regulation in the urban water supply sector in the Lao PDR. The expected outcome of the TA will be strengthened institutional capacity of agencies in urban water supply regulation in the Lao PDR. The proposed TA will complement existing efforts in strengthening the regulatory environment, 10 and will take into consideration recommendations from past technical assistance and recent reviews. 11 B. Methodology and Key Activities 9. Output 1: Sector regulations for improved water operator performance. The WSRC has approved few regulatory documents and guidelines since its establishment in It approved the Guidelines on Service Performance Targets for Water Suppliers and Regulatory Monitoring of Service Levels in June A majority of guidelines covering economic and technical regulation remain in draft. An indicative list of draft regulations and guidelines for review under the TA is provided in Appendix 2. The TA will help strengthen the capacity of the WSRC (and WASRO) to appraise draft regulations and evaluate approved regulatory documents using the RIA tools. Part of the RIA process includes seeking feedback from key stakeholders who will be affected (e.g., water utilities and communities) ADB Report and Recommendation of the President to the Board of Directors: Proposed Grant to the Lao People s Democratic Republic for Small Towns Water Supply and Sanitation Sector Project. Manila (Grant 0143-LAO) supports preparing and implementing a regulatory consultation plan for greater awareness; preparing the water tariff review ; preparing and printing WSRC annual performance reports; developing a water quality check list; consulting services; and limited equipment (computer and printer). Grant consultants will help review the draft regulatory self-financing mechanism. 11 ADB Lessons Learned in Urban Water Supply. Manila; ADB Attaining Access for All: Pro-Poor Policy and Regulation for Water and Energy Services. Manila; ADB Options for a Regulatory Review Program and an Office of Best Regulatory Practice. Manila. (consultant s report); MIREP MIREP Laos Regulation Review: Review of the regulation mechanisms for small scale private water suppliers in Lao PDR. Vientiane; World Bank and Australian Agency for International Development Lao People s Democratic Republic Water Supply and Sanitation Sector Review. Vientiane; ADB Technical Assistance for Enhancing Effective Regulation of Water and Energy Infrastructure and Utility Services. Manila (TA 6424-REG); ADB Findings from TA 3703-PHI: Capacity Building for the Regulatory Office of the Metropolitan Waterworks and Sewerage System (MWSS). Manila. (final publication); ADB Technical Assistance Completion Report of TA 3703-PHI: Capacity Building for the Regulatory Office of the Metropolitan Waterworks and Sewerage System (MWSS). Manila.

7 4 10. Output 2: Improved accountability of provincial nam papas. Reports on annual sector performance and performance audits of water utilities help to support greater accountability and transparency in the sector. Performance audits will help identify specific areas for improvement of PNPs, and these can be incorporated into corporate plans as proposed actions. The government has generated an annual urban water sector performance report since Since it was established, the WSRC has published reports in 2008 and 2009, with the 2010 report expected in October The first performance audit of nine PNPs was also completed in July The TA will assist the WSRC (and WASRO) conduct a performance audit of 16 PNPs and will coordinate with other development partners on a performance audit for NPNL. The audits will be done in three phases: (i) four PNPs that have engaged in the corporatization process since 2008, of which two (Luang Prabang and Oudomxai) were the subject of the initial exercise in 2008; (ii) the remaining seven of nine PNPs that were subject of the initial exercise in 2008; and (iii) the remaining five PNPs that were not included in the initial exercise. Simultaneously, WSRC (and WASRO) will also coordinate with other development partners on the performance audit of NPNL. 11. Output 3: Enhanced sector regulations for private sector participation. To attract private investment it is important to identify the private sector needs and translate them into effective sector regulation. The TA will review current potential for private sector interest in urban water supply and support a demonstration pilot to illustrate how a PPP 13 can be prepared and implemented. Activities under this output will be implemented with the Department of Housing and Urban Planning (DHUP) in the Ministry of Public Works and Transport (MPWT) and coordinated with the ongoing ADB Small Towns Water Supply and Sanitation Sector Project Output 4: Improved customer complaints procedures and relations. There is an opportunity for water utilities to work with communities to ensure high-quality service is provided at an affordable price. Local initiatives can support improved consumer and operator relations, thereby keeping the number of potential consumer complaints low. The TA will help strengthen the customer complaints procedures of water utilities through a pilot demonstration of a telecommunication-linked customer service system. A review of the existing draft procedures, together with the experiences from the pilot, will help in finalizing the WSRC s guidelines on customer complaints procedures and relations. 13. The TA is based on the following assumptions: (i) the government remains committed to improvements in governance issues in urban water supply, (ii) data from PNPs are reliable and accurate, (iii) other development partners continue to support the NPNL in corporate planning, (iv) key stakeholders remain engaged in TA implementation, and (v) TA implementation will be coordinated with ongoing ADB water supply projects. The key risk for the TA is if the WSRC is unable to maintain its mandate and autonomous status. This risk is being mitigated through the TA itself, which would lead to greater self-awareness, and with its strong links with ADB s TA for Support for Post-Private Sector and Small and Medium-Sized Enterprises Development Program Partnership Framework, and the Small Towns Water Supply and Sanitation Sector Project. The TA will not have any safeguard issues or risks. C. Cost and Financing 14. The government has requested ADB to finance $500,000 equivalent which will be financed on a grant basis by ADB s Technical Assistance Special Fund (TASF-IV). The government will provide counterpart support in the form of counterpart staff, air-conditioned office and work space (no office furniture), secretarial assistance, local transport to site visits, standard internet access, and workshop and training facilities. The cost estimates and financing plan are in Appendix Attapeu, Bokeo, Champassak, Huaphan, Khammuan, Luang Prabang, Oudomxay, Saravan, and Xiengkhuang. 13 PPPs are also referred to as public business participation including private sector. 14 ADB Report and Recommendation of the President to the Board of Directors: Proposed Asian Development Fund Grant and Administration of Grants to the Lao People s Democratic Republic for the Small Towns Water Supply and Sanitation Sector Project. Manila (Grant 0143-LAO).

8 5 D. Implementation Arrangements 15. The TA will be implemented for a period of 12 months (1 December 2011 to November 2012). The MPWT specifically the WSRC will be the executing agency. The TA will work with the WASRO and DHUP, specifically the water supply division and the project coordination unit (PCU) for the Small Towns Water Supply and Sanitation Sector Project. The TA will use the project steering committee of the Small Towns Water Supply and Sanitation Sector Project to help coordinate discussions on sector regulation. The WASRO, together with the TA consultants, will also share a summary progress report with WSRC members during each biannual meeting in March and October. Other key implementing partners will include village water supply and sanitation units and PNPs. Participation in regional meetings on regulatory aspects and/or exchanges with other regulatory groups in Southeast Asia will require prior approval from ADB, with endorsement from the WSRC chair. 15 The location of the demonstration pilot activities (outputs 3 and 4) will be agreed upon between ADB and the MPWT during TA implementation. 16. ADB will be responsible for the recruitment of consultants, in consultation with the MPWT, and for overall TA management. Consultants will be engaged by ADB in accordance with its Guidelines on the Use of Consultants (2010, as amended from time to time). TA implementation support will include consulting services of 16 person-months of international consultant services (four consultants) and 12 person-months of national consultant services (one consultant). The consultants will work directly with WSRC members, WASRO, and other MPWT staff. They will be engaged as individuals due to the different specializations required by the TA. The outline terms of reference are in Appendix 4. TA consultants recruited to help support outputs 1 and 2 will work directly with the WASRO; those for outputs 3 and 4 will work with the WASRO, DHUP, and interested PNPs. TA consultants will also assist the MPWT in procuring office equipment in accordance with ADB s Procurement Guidelines (2010, as amended from time to time). All equipment procured will be handed over to the MPWT at the end of the TA. Goods will be procured using shopping procedure, as packages are expected to be less than $100,000 equivalent. TA consultants will also administer the costs for workshops, training, seminars, and surveys. TA disbursements will be done in accordance with ADB s Technical Assistance Disbursement Handbook (2010, as amended from time to time). 17. The attached design and monitoring framework will be used to monitor the TA. Progress reports and knowledge products are part of each consultant s terms of reference. The TA completion report will summarize the key achievements, and knowledge products will help disseminate good practices and lessons. The draft final regulations and final regulations will be translated into both Lao and English. Revised guidelines and policies will be applied to the sector. IV. THE PRESIDENT'S DECISION 18. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $500,000 on a grant basis to the Government of the Lao People s Democratic Republic for Strengthening Urban Water Supply Regulation, and hereby reports this action to the Board. 15 The WSRC chair will submit the nomination of the person to ADB with the required information (e.g., letter of invitation, meeting or visit agenda, estimated cost details, expected outcome). The participant will be asked to submit a report at the end of the visit or meeting to the WSRC chair and ADB. The individual will be asked to make a presentation on the outcomes at the next WSRC and project steering committee meeting for the Small Towns Water Supply and Sanitation Sector Project.

9 6 Appendix 1 Design Summary Impact Improved regulation in the urban water supply sector in Lao PDR DESIGN AND MONITORING FRAMEWORK Performance Targets and Indicators with Baselines Public and private opinion about the sector regulator is improved in the categories of neutrality, efficiency, accountability, and transparency Data Sources and Reporting Mechanisms Findings from a pre- and post-technical assistance questionnaire Annual urban water sector performance reports Assumptions and Risks Assumption Government remains committed to improvements in governance issues in urban water supply Risk WSRC and its secretariat (WASRO) are unable to remain autonomous Outcome By 2012: Assumptions Strengthened institutional capacity of agencies in urban water supply regulation in Lao PDR Annual urban water sector performance reports show improvements in the sector Number of consumer complaints reported to WSRC (or WASRO) decreases by 50% Annual urban water sector performance reports from 2003 to 2011 Provincial nam papa (PNP) audit reports Consumer complaints registrar Data from provincial nam papas is reliable and accurate Annual urban water supply performance reports for 2010 and 2011 will be completed by October 2011 and October 2012 There are no safeguard risks TA implementation will be coordinated with ongoing ADB water supply projects Risk WSRC is unable to maintain its clear mandate and autonomous status, acquire adequate skills, and secure sufficient resources for daily operations Outputs Assumptions 1. Sector regulations for improved water operator performance At least five sector regulations or guidelines are approved and applied PNP corporate plans and annual corporate plan updates Coordination continues between WASRO and PNPs Water operators include service performance targets and service levels in corporate plan and/or concession contracts Case study on application of RIA to the urban water supply sector New concession contracts TA progress reports and final knowledge products WASRO has standardized its data collection procedures for annual performance reporting WSRC and WASRO staff remains engaged during TA implementation 2. Improved accountability of PNPs Improvement in performance of PNPs is recorded through performance audit reports Previous performance audit reports of nine PNPs (2008) Coordination continues between WASRO and PNPs WASRO has standardized

10 Appendix 1 7 Design Summary Performance Targets and Indicators with Baselines Specific areas for improvement are incorporated into PNP corporate action plans Summary report on the performance audits of all 16 PNPs Data Sources and Reporting Mechanisms New performance audit reports of (i) four corporatized PNPs, (ii) seven previously audited PNPs, and (iii) remaining five PNPs never audited. PNP corporate plans Assumptions and Risks its data collection procedures for annual performance reporting Other development partners are engaged with NPNL on its performance audit TA progress reports and final knowledge products 3. Enhanced sector regulations for private sector participation At least one PPP contract is prepared and executed Instruction note for private sector participation in Lao PDR is developed TA progress reports and final knowledge products Government remains committed to engaging with the private sector WSD staff remains engaged during TA implementation Case study on the PPP pilot is prepared Telecommunication-linked customer service system is piloted with at least one PNP 4. Improved customer complaints procedures and relations Case study on the telecommunication pilot is prepared Guidelines on customer complaints procedures are finalized Annual urban water sector performance reports for 2010 and 2011 PNP corporate plans and annual corporate plan updates PNPs remain committed to the pilot and agree to finance the initiative once completed TA progress reports and final knowledge products Activities with Milestones Strengthened sector regulations for improved water operator performance 1.1 Recruit consultants (Q Q1 2012) 1.2 Coordinate with ADB Technical Assistance for Support for Post-Private Sector and Small and Medium-Sized Enterprises Development Program Partnership Framework, and ADB Small Towns Water Supply and Sanitation Sector Project 1.3 Adapt the regulatory impact assessment tool for urban water supply into a simple check list (Q Q1 2012) 1.4 Prepare work plan, which includes (i) an inventory of key regulations or guidelines (Appendix 2); (ii) prioritizing a maximum of 10 regulations or guidelines for revision; (iii) proposed timing of reviews, impact assessments, and approvals of the regulations, (iv) a consultation and dissemination plan; (v) a proposed training plan; and (vi) proposed next steps for when the TA ends (Q Q1 2012) 1.5 Prepare, conduct, and analyze perception questionnaire administered to a sample of PNPs, government officials, and consumers. Prepare a similar questionnaire for administration to the private sector. Ensure gender balance in sample (Q1 2012) 1.6 Adapt and finalize the regulatory impact assessment tool for urban water supply. Conduct trainings, with at least 30% female participants (Q1 2012) 1.7 Revise prioritized regulations, taking into account reviews and assessments completed in the sector since initial draft (Q1 Q3 2012) 1.8 Prepare a midterm report (Q2 2012) 1.9 Conduct consultation workshops on draft regulations (Q2 Q3 2012) 1.10 Finalize and disseminate regulations (Q2 Q3 2012) Inputs ADB: $500,000 Technical Assistance Special Fund (TASF-IV) Consulting services: $413,000 Equipment, data and software: $10,000 Training, seminars, conferences, surveys: $40,000 Vehicle rental: $5,000 Representative for contract negotiation: $5,000 Contingencies: $27,000 The government will provide counterpart support in the form of counterpart staff, airconditioned office and work space (no office

11 8 Appendix 1 Activities with Milestones 1.11 Administer the same public sector questionnaire to similar sample of PNPs, government officials, and consumers. Administer the same private sector questionnaire to a similar sample of private entities. Ensure gender balance in final samples (Q4 2012) 1.12 Prepare draft final report and final report, including the case study (Q4 2012) 2. Improved accountability of PNPs 2.1 Recruit consultants (Q Q1 2012) 2.2 Prepare work plan, which includes (i) proposed timing and details of a performance audit of four PNPs corporatized in 2008, (ii) proposed timing and details of a performance audit of seven PNPs audited in 2008, (iii) proposed timing and details of a performance audit of remaining five PNPs never audited (Q Q1 2012) 2.3 Prepare a single summary report on the performance audit of 16 PNPs (Q3 2012) 2.4 Coordinate with other development partners on a performance audit for NPNL (Q1 Q3, 2012) 2.5 Share findings of the PNP performance audit reports (Q2 Q4 2012) Inputs furniture), secretarial assistance, local transport to site visits, standard internet access, and workshop and training facilities. 3. Enhanced sector regulations for private sector participation 3.1 Recruit consultants (Q1 2012) Coordinate with ADB s TA for Support for Post-Private Sector and Small and Medium-Sized Enterprises Development Program Partnership Framework, a and ADB s Small Towns Water Supply and Sanitation Sector Project b 3.2 Prepare work plan, which includes (i) details of a possible case for PPP pilot, (ii) timing of activities to be completed, and (iii) capacity development workshops required (Q1 2012) 3.3 Identify key legislation or guidelines that require updating or revision (Q1 2012) 3.4 Prepare a midterm report (Q2 2012) 3.5 Design and implement monitoring mechanisms of pilot (Q2 2012) 3.6 Prepare and finalize an instruction note (Q3 2012) 3.7 Prepare draft final report and final report, and a case study based on the experience (Q3 2012) 4. Demonstrated pilot initiatives in sector regulation 4.1 Recruit consultants (Q1 2012) 4.2 Coordinate with ADB Small Towns Water Supply and SanitationSector Project 4.3 Prepare a work plan for delivering the telecommunications pilot, including proposed training plan (Q1 2012) 4.4 Identify Lao telecommunications provider and PNP for pilot (Q1 2012) 4.5 Implement telecommunications pilot (Q1 Q2 2012) 4.6 Design and implement monitoring mechanisms of pilot (Q1 Q2 2012) 4.7 Prepare final report with recommendations for roll-out potential, including a case study on experience (Q2 2012) 4.8 Review customer complaints procedures and finalize guidelines (Q2 Q3 2012) ADB = Asian Development Bank, Lao PDR = Lao People s Democratic Republic, NPNL= Nam Papa Nakhone Luang, PNP = provincial nam papa (water supply utility), PPP = public private partnership, Q = quarter, RIA = regulatory impact assessment, TA = technical assistance, TBD = to be determined, WSD = Water Supply Division, WASRO = Water Supply Regulatory Office, WSRC = Water Supply Regulatory Committee. a ADB Technical Assistance for Support for Post-Private Sector and Small and Medium-Sized Enterprises Development Program Partnership Framework. Manila (TA 7612-LAO). b ADB Report and Recommendation of the President to the Board of Directors: Proposed Asian Development Fund Grant and Administration of Grants to the Lao People s Democratic Republic for the Small Towns Water Supply and Sanitation Sector Project. Manila (Grant 0143-LAO). Sources: ADB and WSRC estimates.

12 Appendix 2 9 INDICATIVE WATER SUPPLY REGULATORY COMMITTEE REGULATIONS AND GUIDELINES FOR REVIEW AND APPROVAL No. Regulation / Guideline Current Status 1. Guidelines on Service Performance Targets for Water Suppliers and Regulatory Monitoring of Service Levels 2. Abstract of the regulatory aspects from the Draft License on Urban Water Supply Operation 3. Water Tariff Implementing Guidelines 4. Regulatory Accounting Guidelines 5. Guidelines for Customer Relations and Complaints Procedures 6. Review of the Prime Ministerial Decree for Urban Water Supply Regulation (No. 191) 7. Templates related to Customer Relations and Complaints Procedures 8. Instruction note on public private partnerships 9. Template for reporting on WSRC and WASRO activities; to be attached to the annual report WSRC approval: 16 June 2010 Submitted to minister for approval (to be retracted) Draft Types of Consultations Draft by NORAD Reviewed and completed by WASRO Draft by NORAD Reviewed and completed by WASRO Draft by NORAD Reviewed and completed by WASRO Expected Approving Authority WSRC chair WSRC chair WSRC chair Draft Draft by NORAD WSRC chair Draft Draft by NORAD WSRC chair Approved 2005 To see whether a supplementary decree can be issued rather than a new decree Prime minister Draft Draft by NORAD WSRC chair None developed None developed WSRC chair None developed None developed WSRC chair NORAD = Norwegian Agency for Development Cooperation, WASRO = Water Supply Regulatory Office, WSRC = Water Supply Regulatory Committee. Note: Includes draft regulations prepared before the approval of the Water Supply Law in Source: WSRC/WASRO, 20 September 2011.

13 10 Appendix 3 COST ESTIMATES AND FINANCING PLAN ($'000) Total Item Cost Asian Development Bank a 1. Consultants a. Remuneration and per diem i. International consultants ii. National consultants b. International and local travel c. Reports and communications Equipment, data, and software b Training, seminars, and conferences a. Facilitators 5.00 b. Training program c. Regional conferences and workshops Surveys Vehicle rental Representative for contract negotiations c Contingencies Total Note: The government will provide counterpart support in the form of counterpart staff, air-conditioned office and work space (no office furniture), secretarial assistance, local transport to site visits, standard internet access, and workshop and training facilities. a Financed by the Asian Development Bank s Technical Assistance Special Fund (TASF-IV). b Equipment includes two computers, office furniture (three chairs, three desks, and three bookshelves), and an estimated five software packages and/or licenses. c Ministry of Finance requested that in case these funds were not used for contract negotiations, they should be reallocated to the contingency. Source: Asian Development Bank estimates.

14 Appendix 4 11 A. International Specialists OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. Water Supply Regulatory Specialist and Team Leader (international, 8 person-months, intermittent) 1. The water supply regulatory specialist shall have extensive knowledge and experience with regulatory reviews in the urban water supply sector. She or he shall have knowledge about regulatory impact assessments (RIAs) and experience conducting RIAs and providing relevant training in other countries, including developing member countries of the Asian Development Bank (ADB). She or he shall have a university degree in economics, finance, accounting, or related discipline, have at least 15 years of professional experience, and have worked in an established office of regulatory practice or equivalent for at least 3 years. Country knowledge and experience in the Lao People s Democratic Republic (Lao PDR) is preferred. 2. The specialist will be expected to work with the Water Supply Regulatory Committee (WSRC), and specifically with the Water Supply Regulatory Office (WASRO), on the activities for outputs 1 3. She or he may be asked to help the Ministry of Public Works and Transport (MPWT) with the procurement of equipment; the organization of workshops; and the administration of workshops, trainings, seminars, conferences, and surveys. She or he will work with WASRO staff in English language on the following activities: (i) Work plan. Together with the WASRO, prepare a work plan for outputs 1 and 2, which will include: (a) (b) (c) (d) (e) (f) (g) (h) a confirmed understanding of WSRC and WASRO roles and responsibilities; an inventory of all sector regulations and/or guidelines that are in draft and have been approved; a review of the regulations and/or guidelines (Appendix 2), prioritizing a maximum of 10 that will be revised; discussion will be undertaken on the steps that need to be taken for approval following the RIA methodology, one of which will be the instruction note for private sector participation and another customer complaints procedure and relations; both will be done in coordination with the international private sector specialist; mapping the timing of reviews, impact assessments, and approvals of the regulations; consulting on and disseminating a plan for sharing drafts and disseminating final regulations, which may include the following participatory methods: public announcements, community meetings, and focus-group discussions; developing a proposed training plan; developing a plan to complete performance audits of 16 provincial nam papas (water supply utilities [PNPs]), starting with the four PNPs that were corporatized in 2008; and proposing next steps for when the TA ends. (ii) Regulatory impact assessments. Coordinate with consultants mobilized through the ADB Post-Private Sector and Small and Medium-Sized Enterprises Development Program Partnership Framework to review the regulatory impact assessment tool and adapt it for urban water supply. The final output is a check list that can be used to assess a new regulation for the sector (two pages). Discuss the importance of the check list with WSRC and WASRO staff.

15 12 Appendix 4 (iii) (iv) Client survey. Assist the WASRO to prepare and administer two questionnaires to capture current perceptions and future expectations of a sector regulator. The questionnaires shall be tested prior to administration. One questionnaire shall target senior management in all 16 PNPs and the water utility in Vientiane Capital City (Nam Papa Nakhone Luang [NPNL]), a sample of government officials, and a sample of customers. At least 30% of respondents shall be women. The second questionnaire shall target private sector entities in the water supply sector. If possible, at least 30% of respondents for the second questionnaire shall be women. Sample size and instruments shall be finalized in consultation with ADB prior to administration. Assist the WASRO to summarize findings in a five-page report. At the end of the assignment, assist the WASRO to administer the same two questionnaires to similar samples of people. Assist the WASRO to summarize the change in perception and client (dis)satisfaction in no more than 10 pages. Regulations and/or guidelines. Assist the WASRO in applying the above check list for each of the selected regulations prioritized, one of which will be the instruction note for private sector participation. Work with the WASRO to improve the areas identified as a result of the review, taking into account recent reviews and assessments. Assist the WASRO to prepare a draft final version of the regulation or guideline for discussion (e.g., WSRC meeting, Water Supply Division, and with PNPs). Assist the WASRO in finalizing regulations and/or guidelines for submission to the WSRC for approval. 3. Assist the WASRO in completing PNP performance audits in the following stages and in coordinating with other development partners on a performance audit for NPNL: (i) (ii) Phase 1: performance audit of four corporatized PNPs. Review the first set of PNP performance audit reports and questionnaire administered. Determine improvements, if any, and advise the WASRO accordingly. Assist the WASRO to conduct a PNP performance audit focusing on four PNPs that first agreed to corporatize in 2008: Luang Namtha, Luang Prabhang, Oudomxay, and Xayaboury. Assist the WASRO to analyze the findings to test whether corporatization had an affect on improved performance. Assist the WASRO to prepare a draft report and share with stakeholders, including WSRC members, ADB, Department of Housing and Urban Planning (DHUP), the Water Supply Division (WSD) and the project coordination unit (PCU) for ADB s Small Towns Water Supply and Sanitation Sector Project. 1 Assist the WASRO to finalize a quality report based on feedback received. Phase 2: performance audit of seven PNPs. Review the first set of PNP performance audit reports and questionnaire administered. Determine improvements, if any, and advise the WASRO of the areas for improvements. Assist the WASRO to conduct a PNP performance audits focusing on the remaining seven PNPs that were audited in 2008 (Attapeu, Bokeo, Champassak, Huaphan, Khammuan, Saravan and Xiengkhuang). Assist the WASRO to analyze the findings to determine the causes for improved (or not improved) 1 ADB Report and Recommendation of the President to the Board of Directors: Proposed Asian Development Fund Grant and Administration of Grants to the Lao People s Democratic Republic for the Small Towns Water Supply and Sanitation Sector Project. Manila (Grant 0143-LAO).

16 Appendix 4 13 performance. Assist the WASRO to prepare a draft report and share with stakeholders, including WSRC members, ADB, DHUP, the WSD, and the PCU for ADB s Small Towns Water Supply and Sanitation Sector Project. Assist the WASRO to finalize a quality report based on feedback received. (iii) Phase 3: performance audit of remaining five PNPs. Assist the WASRO to conduct a performance audit of five PNPs that were not included in the initial 2008 performance audit. Assist the WASRO to analyze the findings to determine the causes for improved (or not improved) performance. Assist the WASRO to prepare a draft report and share with stakeholders including WSRC members, ADB, DHUP, the WSD, and the PCU for ADB s Small Towns Water Supply and Sanitation Sector Project. Assist the WASRO to finalize a quality report based on feedback received. 4. Main deliverables. These include a final report (or output) for each of the above activities, including a midterm report, draft final report, and final report. A case study on application of the RIA approach to urban water supply regulation will also be prepared and may be based on the executive summary of the final report. A summary report on the performance audit of 16 PNPs will also be prepared. These main deliverables will act as payment milestones. 2. Water Supply Benchmarking Specialist (international, 3 person-months, intermittent) 5. The water supply benchmarking specialist shall have extensive knowledge and experience working with water utilities in benchmarking performance. She or he shall have a university degree in an appropriate water-related field, with a preference for studies in economics, finance, or accounting, and at least 10 years of professional experience. Country knowledge and experience in the Greater Mekong Subregion is preferred. The specialist will work with the water supply regulatory specialist and the private sector specialist to provide timely inputs for outputs 1 4. She or he may be asked to help the MPWT with the procurement of data packages; the organization of workshops; and the administration of workshops, trainings, seminars, conferences, and surveys. The specialist will work in English. The specialist will be required to coordinate with the WSRC, WASRO, and the WSD on benchmarking and the delivery of the specified outputs. 3. Private Sector Specialist (international, 3 person-months, intermittent) 6. The private sector specialist shall have extensive knowledge and experience with practical design of public private sector partnerships in urban water supply for at least 5 years. She or he shall have a university degree in economics, finance, or accounting, and at least 10 years of professional experience. Country knowledge and experience in the Lao PDR is preferred. She or he may be asked to help organize workshops. The specialist will work in English. The specialist will be expected to work with the WSD and the PCU for ADB s Small Towns Water Supply and Sanitation Sector Project in developing a public private partnership contract in the Lao PDR in completing the following with respect to output 3: (i) Work plan. Together with the WSD and the PCU for the ADB Small Towns Water Supply and Sanitation Sector Project, prepare a work plan for this output, which includes (a) identifying a possible case for public private partnership pilot demonstration (e.g., Songkhone district, Savannakhet province); (b) compiling a list of activities (and timing for completion) to achieve the expected outcome; (c) developing a monitoring mechanism to be used to test the effectiveness of the pilot; and (d) identifying any assumptions or risks associated with the pilot.

17 14 Appendix 4 (ii) (iii) (iv) Comprehensive review. The specialist will (a) review previous private contracts in the water supply and sanitation sector, including those supported under the Mini-Reseaux d Eau Potable program and the United Nations Human Settlements Programme; (b) refer to previous reviews and studies completed and identify any shortfalls, challenges, and areas for improvement; and (c) review these areas with the WSD, PCU, participating PNP, and other stakeholders (e.g., the Lao Women s Union, academia, or trade unions) to ensure common understanding of the issues related to private sector participation. Contract preparation and award. Based on the subproject town selected, the specialist will review the feasibility study and the financial review of the respective PNP, and conduct field visits and consultations with stakeholders to understand the expectations of all parties in a public private sector partnership. The specialist will identify the enabling environment, assess the risks, and note the limitations associated with the pilot transaction, and review them with relevant parties for discussion. The specialist will also make a recommendation to ADB and the WSD on whether to proceed with the pilot or to reconsider the activity for another subproject town. The recommendation shall include an updated timeline of activities, including contract preparation, award and implementation, and regulatory checks to be carried forward by the WSRC (and WASRO). This might correspond with an early submission of a midterm report. Instruction note. Based on the results of the pilot and on the review of past contracts, the specialist will work with the water supply regulatory specialist, WSD, and WASRO in preparing an instruction note. The instruction note shall be kept simple and user friendly, and will be shared with stakeholders for comments. Based on feedback, the specialist will revise the instruction note. The final note will serve as a guidance note for further application under ADB s Small Towns Water Supply and Sanitation Sector Project. 7. Main deliverables. The main deliverables include output specified in each of the above activities, a midterm report, draft final report, and final report. A case study on the pilot will also be prepared and may be based on the executive summary of the final report. These main deliverables will act as payment milestones. 4. Telecommunications Specialist (international, 2 person-months, intermittent) 8. The telecommunications specialist shall have knowledge and experience in practical design of new technologies and telecommunications initiatives for improving development and regulatory outcomes. Previous experience working in urban water supply is preferred. The specialist shall have a university degree in an appropriate field, with preference for studies in a telecommunications-related technical subject and at least 10 years of professional experience. Country knowledge or experience in the Lao PDR is preferred. She or he will be expected to work with the WSD, the PCU for ADB s Small Towns Water Supply and Sanitation Sector Project, and PNPs in designing the pilot activity. She or he may be asked to help the MPWT with the procurement of related equipment; the organization of workshops; and the administration of workshops, trainings, seminars, conferences, and surveys. Specifically, the specialist will assist in the following: (i) Work plan. Prepare a work plan for delivering the pilot demonstration. It shall include (a) identifying a location for piloting the activity (e.g., Vientiane province); (b) identifying a telecommunications provider willing to partner; (c) listing activities (and timing for completion) to achieve the expected outcome; (d)