Document of The World Bank FOR OFFICIAL USE ONLY Report No: PAD639 INTERNATIONAL DEVELOPMENT ASSOCIATION PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT . IN THE AMOUNT OF SDR 133.2 MILLION (US$205 MILLION EQUIVALLENT) . TO THE . FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA . FOR A . WATER SUPPLY, SANITATION AND HYGIENE PROJECT February 25, 2014 Urban Development and Services Practice 1 (AFTU1) Country Department AFCE3 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2013) Currency Unit = ETB 19.06 ETB = US$1 US$ 1.540 = SDR 1 FISCAL YEAR July 7 – July 6 ABBREVIATIONS AND ACRONYMS AfDB African Development Bank BoFED Bureau of Finance and Economic Development BoWR Bureau of Water Resources CAS Country Assistance Strategy CFT Community Facilitation Team CLTSH Community-Led Total Sanitation and Hygiene COPCU Channel One Program Coordination Unit CPS Country Partnership Strategy ERR Economic Rate of Return ESMF Environmental and Social Management Framework ETB Ethiopian Birr FM Financial Management GoE Government of Ethiopia GPN General Procurement Notice GTP Growth and Transformation Plan HDA Health Development Army HEW Health Extension Worker ICB International Competitive Bidding ICR Implementation Completion and Results Report IDA International Development Association IFRs Interim Financial Reports ISP Implementation support plan JMP Joint Monitoring Program JTR Joint Technical Review M&E Monitoring and Evaluation MDG Millennium Development Goal MIS Management Information System MoE Ministry of Education MoFED Ministry of Finance and Economic Development MoH Ministry of Health ii MOU Memorandum of Understanding MoWIE Ministry of Water, Irrigation and Energy MSF Multi-Stakeholder Forum NCB National Competitive Bidding NPV Net Present Value NWCO National WaSH Coordination Office NWI National WaSH Inventory NWSC National WaSH Steering Committee NWTT National WaSH Technical Team O&M Operation and Maintenance ODF Open-Defecation Free OWNP One WaSH National Program PDO Project Development Objectives PEFA Public Expenditure and Financial Accountability PFM Public Financial Management PIM Project Implementation Manual PMU Project Management Unit RPF Resettlement Policy Framework RWSS Rural Water Supply and Sanitation RWCO Regional WaSH Coordination Office SA Social Assessment SNNPR Southern Nations and Nationalities People’s Region TVETC Technical and Vocational Training College UAP Universal Access Plan UNICEF United Nations Children’s Fund WaSH Water, Sanitation and Hygiene WaSHP Water, Sanitation and Hygiene Project WaSHCO Water, Sanitation and Hygiene Committee WIF WaSH Implementation Framework WoFED Woreda Finance and Economic Development Office WRDF Water Resource Development Fund WSSP Water Supply and Sanitation Project WWC Woreda WaSH Consultants WWT Woreda WaSH Team Regional Vice President: Makhtar Diop Country Director: Guang Zhe Chen Sector Director: Jamal Saghir Sector Manager: R. Mukami Kariuki Task Team Leader: Tesfaye Bekalu Co-Task Team Leader: Sanyu Lutalo iii FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA Water Supply, Sanitation and Hygiene Project (WaSHP) (P133591) Page Table of Contents I.  STRATEGIC CONTEXT ..................................................................................................... 1  A.  Country Context ................................................................................................................. 1  B.  Sectoral and Institutional Context...................................................................................... 2  C.  Higher Level Objectives to which the Project Contributes ............................................... 4  II.  PROJECT DEVELOPMENT OBJECTIVES .................................................................... 4  A.  Project Development Objectives (PDO) ............................................................................ 4  B.  Project Beneficiaries .......................................................................................................... 5  C.  PDO Level Results Indicators ............................................................................................ 5  III.  PROJECT DESCRIPTION .................................................................................................. 6  A.  Project Components ........................................................................................................... 6  B.  Project Cost and Financing ................................................................................................ 8  C.  Lessons Learned and Reflected in the Project Design. ...................................................... 9  IV.  IMPLEMENTATION ......................................................................................................... 11  A.  Institutional and Implementation Arrangements ............................................................. 11  B.  Results Monitoring and Evaluation ................................................................................. 13  C.  Sustainability.................................................................................................................... 14  V.  KEY RISKS AND MITIGATION MEASURES .............................................................. 15  A.  Risk Ratings Summary Table .......................................................................................... 15  B.  Overall Risk Rating Explanation ..................................................................................... 15  VI.  APPRAISAL SUMMARY .................................................................................................. 16  A.  Economic and Financial Analysis .................................................................................... 16  B.  Technical .......................................................................................................................... 18  C.  Financial Management ..................................................................................................... 18  D.  Procurement ..................................................................................................................... 19  E.  Social (including Safeguards) .......................................................................................... 20  F.  Environment (including Safeguards) ............................................................................... 22  iv Annex 1: Results Framework and Monitoring....................................................................... 24  Annex 2: Detailed Project Description .................................................................................. 32  Annex 3: Institutional and Implementation Arrangement ..................................................... 42  Annex 4: Operational Risk Assessment Framework (ORAF) .............................................. 75  Annex 5: Implementation Support Plan ................................................................................. 79  Annex 6: Social Development ............................................................................................... 83  Annex 7: Environmental and Social (including safeguards) ................................................. 92  Annex 8: Location Map ......................................................................................................... 94  v . PAD DATA SHEET Ethiopia Water Supply, Sanitation and Hygiene Project (P133591) PROJECT APPRAISAL DOCUMENT . AFRICA AFTU1 Report No.: PAD639 . Basic Information Project ID Lending Instrument EA Category Team Leader P133591 Investment Project B - Partial Assessment Tesfaye Bekalu Wondem Financing Project Implementation Start Date Project Implementation End Date 20-Mar-2014 30-Jun-2019 Expected Effectiveness Date Expected Closing Date 30-Jun-2014 30-Jun-2019 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President R. Mukami Kariuki Jamal Saghir Guang Zhe Chen Makhtar Diop . Borrower: FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA Responsible Agency: Ministry of Water Irrigation and Energy Contact: Ato Nuredin Mohammed Title: A/Director, Water Supply and Sanitation Directorate Telephone No.: 251-116-625526 Email: Nuredinmohammed@yahoo.com Responsible Agency: Ministry of Education Contact: Ato Solomon Shiferaw Title: Director, EMIS, Planning and Resource Mobilization Directorate Telephone No.: 251-1911500468 Email: Solshi2002@yahoo.com Responsible Agency: Ministry of Health Contact: Wro Meseret Yetubeie Title: Director, for Health Extension and Primary Health Service Directorate Telephone No.: 251-1911727651 Email: mesyabriham@yahoo.com . vi Project Financing Data(in USD Million) [ ] Loan [ ] Grant [ ] Other [X] Credit [ ] Guarantee Total Project Cost: 233.80 Total Bank Financing: 205.00 Financing Gap: 0.00 . Financing Source Amount BORROWER/RECIPIENT 28.80 International Development Association (IDA) 205.00 Total 233.80 . Expected Disbursements (in USD Million) Fiscal Year 2014 2015 2016 2017 2018 2019 Annual 5.9 40.0 45.0 55.0 45.0 14.1 Cumulative 5.9 45.9 90.9 145.9 190.9 205.0 . Proposed Development Objective(s) The development objective of the project is “to increase access to improved water supply and sanitation services for residents in participating woredas/towns and communities in Ethiopia.” . Components Component Name Cost (US$ Millions) Rural Water Supply, Sanitation and Hygiene 109.30 Urban Water Supply, Sanitation and Hygiene 84.70 Project Management Monitoring and Evaluation 11.00 . Institutional Data Sector Board Water . Sectors / Climate Change Sector (Maximum 5 and total % must equal 100) Major Sector Sector % Adaptation Co- Mitigation Co- benefits % benefits % Water, Sanitation and Flood Protection Sanitation 30 Water, Sanitation and Flood Protection Water supply 70 Total 100 I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. vii . Themes Theme (Maximum 5 and total % must equal 100) Major theme Theme % Rural development Rural services and infrastructure 25 Urban development Urban services and housing for the poor 25 Public sector governance Decentralization 24 Urban development City-wide infrastructure and service delivery 13 Social dev/gender/inclusion Participation and civic engagement 13 Total 100 . Compliance Policy Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [ X ] . Does the project require any waivers of Bank policies? Yes [ ] No [ X ] Have these been approved by Bank management? Yes [ ] No [ ] Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ] . Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X Forests OP/BP 4.36 X Pest Management OP 4.09 X Physical Cultural Resources OP/BP 4.11 X Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X Safety of Dams OP/BP 4.37 X Projects on International Waterways OP/BP 7.50 X Projects in Disputed Areas OP/BP 7.60 X . Legal Covenants Name Recurrent Due Date Frequency Financing Agreement Reference: Schedule 2 yes Continuous Description of the covenant : (i) The Recipient shall maintain at all times during the Project implementation period the National Water, Sanitation and Hygiene Steering Committee, the National Water, Sanitation and Hygiene Technical Team, the National Water, Sanitation and Hygiene Coordination Office, as well as Water, Sanitation and Hygiene Program Management Units viii in its sector ministries and WRDF, all with the composition, terms of reference, staff and other resources adequate for the Project implementation and satisfactory to the Association. Name Recurrent Due Date Frequency Financing Agreement Reference: Schedule 2 Yes Bi annual Description of the covenant: (ii) The Recipient shall monitor and evaluate the progress of the Project and prepare Project Reports in accordance with the provisions of Section 4.08 of the General Conditions of the Financing Agreement and on the basis of the indicators acceptable to the Association. Each Project Report shall cover the period of six (6) months, and shall be furnished to the Association not later than forty five (45) days after the end of the period covered by such report. Name Recurrent Due Date Frequency Financing Agreement Reference: Schedule 2 Yes Annual Description of the Covenant (iii) The Recipient shall, no later than July 7 of each year until completion of the Project, carry out independent annual procurement audits of the Project activities, all in accordance with the terms of reference agreed with the Association. The audited reports for each such period shall be furnished to the Association not later than four (4) months after the end of such period. Name Recurrent Due Date Frequency Financing Agreement Reference: Schedule 2 Yes Semi Annually Description of the covenant (iv) The Recipient shall regularly review the effective use of SA, ESMF, RPF and Supplemental Social and Environmental Safeguard Instruments as part of the monitoring and evaluation system for the Project. Name Recurrent Due Date Frequency Financing Agreement Reference: Schedule 2 August 7, 2014 (v) Not later that one (1) month after the effectiveness of this Agreement, the Recipient shall develop a set of criteria, satisfactory to the Association, to be used to determine financing modalities (grant, loan, or the combination of the two) for the activities to be implemented by WRDF under Part 2 of the Project. . Conditions Name: N/A Type Team Composition Bank Staff Name Title Specialization Unit Tesfaye Bekalu Wondem Senior Water & Sanitation Spec. Team Lead AFTU1 Nikolai A. Soubbotin Lead Counsel Legal LEGAM Sanyu Lutalo Senior Water & Sanitation Spec. Water Supply and Sanitation AFTU1 Yitbarek Tessema Lead Water and Sanitation Specialist Water Supply and Sanitation AFTU1 Chukwudi H. Okafor Senior Social Development Specialist Social Development AFTCS Wendwosen Feleke Operations Officer Operations AFTU1 Kebede Faris Senior Water & Sanitation Spec. Water Supply and Sanitation TWIAF ix Roderick M. Babijes Program Assistant Program Assistant AFTU1 George Ferreira Da Silva Finance Analyst Finance Analyst CTRLA Abiy Demissie Belay Senior Financial Management Financial Management AFTME Specialist Rahel Kaba Water Supply and Sanitation Specialist Water Supply and Sanitation AFTU1 Binyam Bedelu Senior Procurement Specialist Procurement AFTPE Asferachew Abate Abebe Senior Environmental Specialist Environment AFTN3 Jose C. Janeiro Senior Finance Officer Finance/Disbursement CTRLA Officer Yodit Rezene Team Assistant Team Assistant AFCE3 Non-Bank Staff Name Title Office Phone City Locations Country First Administrative Division Location Planned Actual Comments Ethiopia Afar Region Afar Region X Ethiopia Amhara Region Amhara Region X Ethiopia Benishangul-Gumuz Region Benishangul-Gumuz Region X Ethiopia Dire Dawa City Administration Dire Dawa X Ethiopia Gambela Gambela X Ethiopia Harari Region Harari Region X Ethiopia Oromiya Region Oromiya Region X Ethiopia Somali Region Somali Region X Ethiopia Tigray Region Tigray Region X Ethiopia Southern Nations, Southern Nations, X Nationalities, and People's Nationalities, and People's Region Region x I. STRATEGIC CONTEXT A. COUNTRY CONTEXT 1. Ethiopia is a large, diverse, land-locked country located in the Horn of Africa, with an area of about 1.1 million square kilometers. It is a country of many nations, nationalities and peoples, with a total population of about 91.7 million (2012)1. Only 17 percent of the population lives in urban centers, of which 21 percent lives in Addis Ababa, the capital city. At the current annual growth rate of 2.6 percent, Ethiopia’s population is expected to reach 130 million by 2025, and it is projected by the UN to be among the world’s top ten most populous countries by 2050. 2. Ethiopia is governed through a federal, democratic government system, established in the early 1990s, with nine autonomous states (‘regions’) and two chartered cities2. Decentralization of governance to the regional and district (woreda) levels has been actively pursued since 2003. The Ethiopian People’s Revolutionary Democratic Front (EPRDF) has been in power since 1991. EPRDF comprises four regionally-based parties from the four major regions (Amhara, Oromia, Southern Nations, Nationalities People’s Region (SNNPR), and Tigray). The next national elections are scheduled for 2015. 3. Ethiopia has experienced strong economic growth over the past decade, with an average growth of 10.7 percent per year between 2003/04 and 2011/12, compared to the regional average of 5.4 percent. That growth is attributed to various factors, including agricultural modernization, the development of new export sectors, strong global commodity demand, and government-led development investments. Private consumption and public investment have driven demand side growth, with the latter assuming an increasingly important role in recent years. On the supply side, growth has been driven by an expansion of the services and agricultural sectors, while the role of the industrial sector has been relatively modest. More recently, annual growth rates have declined slightly but still remain at high single-digit levels. There have been bouts of high inflation in recent years and, while inflation is currently much lower3, keeping it down remains a major objective of monetary policy. 4. Although Ethiopia is one of the world's poorest countries, it has made substantial progress on social and human development over the past decade. High economic growth has helped reduce poverty in both urban and rural areas. Since 2005, about 2.5 million people have been lifted out of poverty, and the share of the population below the poverty line has fallen from 38.7 percent in 2004/05 to 29.6 percent in 2010/11 (using a poverty line of US$0.6/day)4. However, because of high population growth, the absolute number of poor (about 25 million) has remained unchanged over the past fifteen years. The country’s per capita income of US$370 remains substantially lower than the regional average of US$1,257, and among the ten lowest worldwide5. 1 Source: United Nations Population Division. According to the Central Statistics Office of Ethiopia, the population figure for July 2011 is 82.1 million. 2 The Regions are Afar, Amhara, Benishangul-Gumuz, Gambella, Harari, Oromia, Somali, SNNPR (Southern Nations, Nationalities and Peoples), and Tigray. The chartered cities are Addis Ababa and Dire Dawa. 3 In August 2008, headline inflation (year on year) peaked at 61.6 percent but declined to 40.6 percent in June 2011 and further to 20.5 percent in June 2012. 4 However the poverty rate in Ethiopia as measured by international standards remains very high: 39 percent of Ethiopians live below US$1.25 a day; 78 percent of Ethiopians live under US$2 a day (United Nations Development Program - UNDP). 5 Gross National Income, World Bank Atlas Method. 1 5. Ethiopia is among the countries that have made the fastest progress on the Millennium Development Goals (MDGs) and Human Development Index (HDI) ranking over the past decade. It is now ranked 173 out of 187 countries ranked in the HDI. The country is on track to achieve the MDGs related to gender parity in education, child mortality, HIV/AIDS, and malaria. Good progress has also been achieved in universal primary education, although the MDG target may not be met by 2015. In terms of water supply, Ethiopia is making steady progress towards achieving the MDG target, but like several other Sub-Saharan African Countries, it is off track with regard to the sanitation target. B. SECTORAL AND INSTITUTIONAL CONTEXT 6. Responsibility for development and provision of water supply and sanitation services is shared among four Federal Ministries; the Ministries of Education, Finance and Economic Development, Health, and Water, Irrigation and Energy, and their respective Bureaus at the regional level. In addition, consistent with Ethiopia’s decentralization policy, woredas/towns6 and communities are responsible for planning and managing their own water supply and sanitation services. 7. In its Growth and Transformation Plan (GTP) for the 2010 to 2015 period, the Government of Ethiopia (GoE) has set ambitious targets of providing 98 percent of the population with improved access to safe water, 100 percent with basic sanitation, achieving 84 percent coverage for improved hygiene and sanitation, 77 percent achievement of proper hand washing, and 77 percent safe water handling and use. The four Ministries involved in the sector signed a Memorandum of Understanding (MOU) in November 2012, to support an integrated One Water Sanitation and Hygiene (WaSH) National Program (OWNP). The OWNP is intended to operationalize the mentioned MoU, as well as the WaSH Implementation Framework (WIF) signed by the same Ministries in March 2013. The OWNP is the Government’s main instrument for achieving the GTP’s goals in a more integrated manner so as to coordinate their activities and reduce transaction costs of service delivery with respect to water supply, sanitation, and hygiene in rural, urban, and pastoral communities, as well as schools and health posts and health centers. The OWNP’s development objective is to contribute to improving the health and well-being in rural and urban populations by increasing water supply and sanitation access and the adoption of good hygiene behavior and practices in an equitable and sustainable manner. The proposed project is aligned with the OWNP, which will be financed by the Government and potentially other development partners. 8. The recently closed International Development Association/Department for International Development (IDA/DFID)-financed Water Supply and Sanitation Project (WSSP) in the amount of US$280 million piloted a programmatic approach to rural and urban water supply and sanitation sector financing in Ethiopia. It has provided access to improved water supply and sanitation services to more than 5 million people, 3.7 million in rural areas and 1.33 million in urban areas. Through a unique capacity building arrangement of ‘learning by doing’, a tripartite arrangement for technical assistance, and a stepped and gradual approach for rural and urban water supply and sanitation, the project has managed to support 224 woredas to prepare and implement woreda-wide WaSH plans. Similarly, in urban areas a total of 130 small and medium 6 In Ethiopia, there are no clear definitions of what constitutes a "City" and what constitutes a "Town", discretion on thresholds for classifying towns and cities are left to the regions. Therefore the definitions used in the PAD are taken from the One Wash Program Document which defines small towns are fewer than 20,000 people and medium towns as those with 20,000-100,000 people. 2 towns received support to prepare their urban WaSH plans, and 83 of them to construct their systems. The WSSP implementation approach was also used by the African Development Bank (AfDB) to support WSS improvements in about 120 additional woredas in the country. 9. The approach introduced by the WSSP has been instrumental in shifting sector support from a centralized supply-driven approach to a demand-driven approach. It also contributed to the realization of the Government’s policy of decentralization, promoting the involvement of all stakeholders in service delivery, enhancing community ownership, improving the level of cost recovery and integration of hygiene and sanitation and water supply. The proposed project (WaSHP) which is viewed as a second phase of the WSSP by the Government builds on the lessons of WSSP and provides the government an opportunity to scale up the achievements of the previous project, contributing to the OWNP, improving sectoral planning and coordination across the government, and increasing funding levels in order to meet GTP targets. 10. While there have been significant improvements in access to safe water supply and sanitation services in Ethiopia over the past two decades, the numbers remain low, even compared with the Sub-Saharan Africa average7. The National WaSH Inventory (NWI)8 results for access to improved water supply and sanitation services in Ethiopia are summarized in Table 1 below. Table 1 : Access to Water Supply and Sanitation Services in Ethiopia 2011 WaSH Data9 Rural Urban Schools Health Facilities Access to Safe Water Supply 49 75 31 32 Access to Sanitation Facilities (latrine) 60 80 33 85 11. At the time of NWI, at least 25.5 percent of rural water supply schemes were not functional. Sustainability of services is a major issue attributed to factors such as lack of spare parts outlets, poor maintenance capacity, and insufficient post-construction support from regional bureaus and woreda offices. The NWI results are, however, consistent with the major statistics from other sources on the sector, namely the Joint Monitoring Program (JMP), the Welfare Monitoring Survey (WMS) and the Demographic and Health Survey (DHS)10. The GoE has thus decided to adopt the NWI results as baseline data for the OWNP. In view, however, of IDA requirements to monitor direct results from activities financed by the project based on standard Bank core sector indicators, baselines and targets for the proposed WaSHP have been established and will be monitored in addition to the broader NWI. The NWI database will be reviewed and augmented as needed, with project support, to ensure that data is regularly updated and results extracted for purposes of monitoring and evaluation of project results. 12. The GoE's policies and strategies, which are considered in the proposed intervention, are designed to respond to some of the economic, social, institutional, and operational challenges affecting the sustainable delivery of services. The major policy principles include: (i) 7 For comparison, access to improved water supply and sanitation services for Sub-Saharan Africa were estimated at 84% and 37%, respectively for the same period. Source: WHO/UNICEF JMP 2013 Update Data. 8 The NWI was prepared as part of a major initiative by the G0E and key sector stakeholders to establish a nationwide data base as a monitoring tool for water supply, sanitation, and hygiene. The findings of the NWI were officially released in April 2013. 9 Source: National WaSH Inventory (NWI) 10 The WHO/UNICEF Joint Monitoring Program (JMP) 2013 Update reported that, access to improved water supply coverage for Ethiopia increased from 14% in 1990 to 49% (rural 39% and urban 97%) in 2011 and open defecation reduced from 93% in 1990 to 45% (53% rural and 8% urban) in 2011 3 recognizing water and sanitation as economic and social goods; (ii) devolving ownership and management autonomy to the lowest possible local level; (iii) moving towards full11 cost recovery for urban schemes and recovery of operation and maintenance cost for rural schemes; (iv) no direct subsidy for construction of household latrines; and (v) integrating sanitation and hygiene promotion with water supply. C. HIGHER LEVEL OBJECTIVES TO WHICH THE PROJECT CONTRIBUTES 13. The proposed operation is consistent with the World Bank’s twin goals of ending extreme poverty and promoting shared prosperity. Providing access to safe and sufficient water and improved sanitation and hygiene is essential for improving the health, well-being, and productivity of vulnerable populations, and enhanced economic growth is an essential ingredient for poverty reduction. The provision of effective safe water and sanitation services will also contribute to reducing the effects of poverty by lowering waterborne- and sanitation-related health risks and the associated vulnerabilities that the poor especially face. The project will contribute to income generation by helping secure sustainable livelihoods for vulnerable people and catalyzing economic growth through, among other things, establishing WaSH marketing as a potential private sector business in communities. 14. WaSHP is consistent with the Bank’s current Country Partnership Strategy (CPS) (2012- 2015) for Ethiopia, aligned with the country’s ambitious GTP for 2010-2015, which aims at accelerating its development endeavors to achievements beyond the MDG targets. The project is fully aligned with the CPS, emphasizing increased access to and improved quality of infrastructure services, in particular water supply and sanitation. The project, in line with the CPS principles, extends the Bank’s long-term progressive engagement – and catalytic role - with the GoE’s water sector, supporting the country’s effort to gradually move towards a multi-sector programmatic approach. 15. WaSHP is also aligned with the two pillars of the 2011 World Bank Africa Regional Strategy. Its intended contributions towards creating a healthy workforce, women’s empowerment, and opportunities for economic growth are consistent with the Strategy’s first pillar (competitiveness and employment); its contribution to robust public health is consistent with the second pillar (vulnerability and resilience). The project’s decentralized implementation approach and its focus on capacity building are also expected to support the foundation of the Regional Strategy (governance and public sector capacity). II. PROJECT DEVELOPMENT OBJECTIVES A. PROJECT DEVELOPMENT OBJECTIVES (PDO) 16. The project development objective is to “increase access to improved12 water supply and sanitation services for residents in participating woredas, towns and communities in Ethiopia”. 11 The project policy design is fully cognizant of the need for gradual progress towards achievement of full cost recovery as a longer-term objective in the Ethiopian context. 12 An improved drinking-water source is defined as one that, by nature of its construction or through active intervention, is protected from outside contamination, in particular from contamination with fecal matter and chemicals. An improved sanitation facility is defined as one that hygienically separates human excreta from human contact. (See broader definition under definition of terms in Annex 1). 4 B. PROJECT BENEFICIARIES 17. The primary project beneficiaries are rural and urban residents in participating woredas/towns and communities in Ethiopia. The project will provide benefits in the form of improved water supply service and sanitation and hygiene education to an estimated 2.62 million people (1.62 million rural and 1 million urban), which is about 8.4 percent of the 31 million people targeted under OWNP (26.6 million rural and 4.4 million urban). Un-served households, who in most cases represent the poorest and most vulnerable, and institutions will be particularly targeted and will receive greater priority than those who already have a basic level of service. To ensure that the project benefits the most disadvantaged, an appropriate targeting approach will include: (i) a level of service coverage based on the results of the NWI; (ii) maintaining geographic balance; (iii) proportion of the unserved population; (iv) presence of ongoing projects in the woreda or town; (v) implementation readiness expressed by commitments from participating woredas, communities, and towns; and (vi) compliance with the Bank’s safeguards requirements, including meeting initial screenings requirements. These will be further elaborated in the Project Implementation Manual (PIM). While these are general criteria to be used by the project, each region can include additional criteria to fit its specific regional contexts. 18. Women and children are typically responsible at the household level for collecting water in Ethiopia. Access to improved water supply and sanitation facilities is expected to contribute to poverty reduction and gender equality among the beneficiary populations by addressing burdens especially borne by women and girls. This includes, in particular, the benefits of reduced time and effort spent in collecting water, as well as associated benefits such as personal security, health, and economic productivity. The proposed project will emphasize the role of women in the decision-making process at various stages of system design, implementation, and management to improve the sustainability of investments and improve the quality of life. Gender disaggregated indicators will be used to track gender equity in roles and benefits from the project. C. PDO LEVEL RESULTS INDICATORS 19. The following indicators will be used to measure progress towards achieving the PDO: (i) Number of people in rural areas provided with access to improved water sources under the project (male/female)13 (ii) Number of people in urban areas provided with access to improved water sources under the project (male/female) (iii) Number of people in rural areas provided with access to improved sanitation facilities under the project (male/female) (iv) Number of people in urban areas provided with access to improved sanitation facilities under the project (male/female) (v) Number of people that are direct project beneficiaries (male/female) 13 In the Ethiopian context, access to water supply is defined using the following three parameters: (i) Quality: Water supplied from improved sources should meet the Ethiopian drinking water standard; (ii) Quantity: The yield from the scheme during the driest day of the year should have a capacity to provide at least 15 liters and 20 liters per capita for rural and urban residents respectively; and (iii) Accessibility: The maximum distance for a water supply scheme should be within 1.5 Km for rural and 0.5 Km for urban residents from the farthest delivery point. 5 III. PROJECT DESCRIPTION A. PROJECT COMPONENTS 20. To achieve its development objectives, the project will finance the following components. 21. Component 1. Rural Water Supply, Sanitation and Hygiene (R-WaSH) (US$121 million equivalent, IDA financing). This component aims to improve access to water supply and sanitation services, and to promote improved hygiene in rural areas. The component will finance the following activities: (i) Construction and rehabilitation of community water supply schemes in participating woredas and communities; (ii) Construction and rehabilitation of institutional water and sanitation facilities in schools and health facilities in participating woredas and communities; (iii) Promotion of improved hygiene and sanitation practices through support in the design and application of behavior change communication materials in beneficiary communities; (iv) Capacity building to strengthen and sustain the capacity of beneficiary woredas to effectively plan, implement and manage their R-WaSH; (v) Capacity building to strengthen and sustain the capacity of beneficiary communities to effectively operate their water supply and sanitation facilities. (vi) Capacity building for respective water, health, and education regional bureaus and woreda offices to create a critical mass of well-trained and skilled facilitators to mobilize communities for behavior change and demand creation to sustain the impact of these changes. 22. With regard to water supply, the R-WaSH will specifically support the creation of sustainable rural water supply system management through activities such as: (i) support for the establishment of sustainable spare parts supply chains, procurement of equipment and tools for operations and maintenance (O&M), and capacity building of the local private sector to support water supply service delivery. The program will also support a combination of different options for ensuring sustainable supply chains according to the specific regional context; (ii) strengthening the O&M units in government structures at all levels to provide adequate O&M back-stopping for communities to properly operate and maintain their water supply schemes; and (iii) supporting the establishment of O&M training curricula under the local Technical and Vocational Training Colleges (TVETCs) and equipping them to train local private operators, technicians, and artisans with O&M and construction skills. 23. With regard to Sanitation and Hygiene, capacity-building support at the regional and woreda level will help WSS actors to master facilitation skills for mobilizing communities for sanitation and hygiene behavioral changes and practices, using the Government-approved Community-Led Total Sanitation and Hygiene (CLTSH) approach. Skills transfer will also be made specifically to Health Development Armies (HDAs) and Health Extension Workers (HEWs) in mobilizing households for ‘small do-able-actions’ in sanitation and hygiene so that sustained behavioral change is possible. 24. Component 2. Urban Water Supply, Sanitation and Hygiene (U-WaSH, US$101.8 million equivalent, IDA financing). This component aims to improve access to water supply 6 and sanitation services in urban areas (small and medium towns)14, and to strengthen the capacity of WaSH officials to plan and manage these services in a sustainable manner. The component will finance the following activities: (i) Rehabilitation and reconstruction of urban water production, treatment, and distribution systems; (ii) Preparation of a National Urban Sanitation Strategy, supporting studies on urban sanitation, and priority sanitation investments in beneficiary towns; (iii) Activities to strengthen the capacity of participating water boards/committees and operators to effectively manage their water supply and sanitation facilities; and (iv) Activities to support preparation of follow up interventions in urban areas (including sub sector technical, institutional and financial assessments, and feasibility studies in selected urban areas as well as look at potentials for public private partnership arrangements). 25. Works in larger urban centers with existing water supply and sanitation systems that need to be expanded or improved are to be financed consistent with the Government’s policy on cost recovery for urban water supply and sanitation. The cost recovery policy will be implemented gradually, based on the financial capacity of the town to repay. In cases where the recovery of capital cost is unaffordable by towns, part of the sub-project will be financed by a grant. This is in line with the current practice under the closed WSSP. The Water Resources Development Fund (WRDF) will be the implementing agency for these activities and responsible for appraisal of proposed projects and monitoring and evaluation. MoWIE will develop a set of criteria, satisfactory to the Association, to be used to determine financing modalities (grant, loan, or the combination of the two) for the activities to be implemented by WRDF not later that one month after the effectiveness. 26. Funding will be provided to enhance the capacity of participating water board members and water utility staffs to effectively manage their water supply and sanitation facilities. This will include capacity building activities such as staff training, provision of equipment to strengthen the management capacity of boards and utilities, and support for preparation of business plans to manage operations as commercial entities. In addition, separate capacity building packages will be provided for medium-sized towns to improve operational efficiency of the utilities and enable them to operate as business entities. Funding will also be provided to help utilities reduce their unaccounted-for-water, improve billing systems, establish proper asset management plans, put in place adequate Management Information Systems (MIS), support utility benchmarking, improve customer relations and services, and implement proper tariff and organizational development. In addition the program will support capacity building for small scale microenterprises to operate and manage the public sanitation facilities and for public oversight by the relevant woreda and town entities. 27. Component 3. Project Management Monitoring and Evaluation (US$11 million equivalent, IDA financing). This component aims to support and build the capacity of WaSH agencies at federal, regional, and local government levels to plan, implement, and manage water supply and sanitation services under their jurisdiction. This component will provide financing to the Ministry of Finance and Economic Development (MoFED), Ministry of Health (MoH), 14 Small towns include towns with population of less than 20,000 people while medium towns comprises towns with population between 20,000 and 100,000 people (OWNP, 2013) 7 Ministry of Education (MoE), and MoWIE, and to the regional Health, Education and Water bureau as well as woreda WaSH offices, the Bureau of Finance and Economic Development (BoFED) and Woreda Finance and Economic Development Office (WoFED) personnel and regionally-based consultants to carry out the following activities: (i) Support for program and project implementation including establishing and maintaining strong contract administration and monitoring system (ii) Support for refinement of sector policies and program implementation arrangements, including activities to support creation of the enabling environment for a sound programmatic approach; (iii) Support activities that will generate evidence and information on the existing WSS sector policy performance, including cost recovery, sector financing, public private partnership, and post construction support, with a view to recommend policy revisions if needed; (iv) Equipping water quality testing and training centers; (v) Support for program Monitoring and Evaluation (M&E), including strengthening and rollout of sector M&E/MIS, annual update of NWI, monitoring of project results, strengthening gender mainstreaming in the sector, and other capacity building activities; and (vi) Improvement of the flow of information on program results, making it available for users. 28. A “Learning by Doing” approach, where resources including, systems, guidelines, and manuals are made available to implementing agencies to build local capacity through on the job practice, will be maintained, in line with the Government’s approach to capacity building. The project will thus support the development and compilation of manuals, guidelines, and more importantly make resources available for implementing agencies to build capacity for management of WaSH activities. At the woreda, town, and community levels, capacity building support will be incorporated into Technical Assistance contracts and combined with implementation. B. PROJECT COST AND FINANCING 29. Lending Instrument: The proposed lending instrument is Investment Project Financing (IPF), comprising an IDA Credit of US$205 million equivalent to the Government of Ethiopia, to be implemented over a period of five years. This includes US$5.99 million disbursed as a project preparation advance from the credit. 30. The IPF instrument was selected in view of its flexibility and suitability for financing a broad range of activities, including investments, technical assistance and capacity building measures. The Bank considered other instruments, such as Program for Results (PforR) as possible financing options. However, PforR requires well developed fiduciary systems, a functional monitoring mechanism, and robust information and data management, all of which are currently inadequate in Ethiopia’s water supply and sanitation sector. 31. A programmatic sector wide approach (SWAP) was considered during project design. However, at this stage, arrangements for the Bank to pool its resources with other financers’ under IDA fiduciary and safeguards rules are not currently agreed. Hence, as shown on Table 2, 8 the scope of the proposed operation is limited to the IDA contribution and associated counterpart funding from the beneficiary communities. 32. Communities both in rural and urban areas will contribute to the project in the form of labor, material, and cash whose total amount is estimated to be US$28.80 million. A summary of project costs is presented in Table 2. The proposed WaSHP financing will cover about 8.5 percent of the US$2.4 billion estimated to finance the GoE’s broader sector program OWNP15. Table 2: Summary of Project Costs by Component and Financing Source Allocation in US$ million No Major Components Total IDA Counterpart Funding16 IDA Financing Rural Water Supply , Sanitation 1 109.3 99.3 10 91% and Hygien Urban Water Supply , Sanitation 2 93.0 77.7 15.3 84% and Hygien Project Management Monitoring 3 10.3 9.4 0.9 91% and Evaluation and TA Total Base Case 212.6 186.4 26.2 88% Contingency 21.2 18.6 2.6 88% Total Cost 233.8 205.0 28.8 88% 33. Funds Flow: IDA funds will be channeled to the implementing agencies through MoFED, BoFED and WoFEDs (Channel 1A17). A detailed description of the funds flow mechanism is presented in Annex 3. At Mid-Term Review (MTR), progress in establishing appropriate arrangements for a multi donor programmatic approach that complies with IDA’s fiduciary and safeguard requirements for pooling resources with other financers will be reviewed, and a decision made whether restructuring of the funding arrangements is warranted. C. LESSONS LEARNED AND REFLECTED IN THE PROJECT DESIGN. 34. Key design features of the project build on the lessons learned from implementing the recently closed Ethiopia WSSP, including the following: (i) Mainstreaming institutional arrangements of an operation with existing government systems can improve overall sector coordination and lay a foundation for a successful programmatic approach. Under WSSP, service delivery was devolved to lower levels and helped to improve the effectiveness and efficiency of project implementation. This approach also helped to strengthen capacity at all levels to manage development of their WSS. The proposed operation’s institutional and implementation arrangements are based on the same approach as in the WSSP. 15 According to the OWNP estimates, achieving the GTP targets for WSS in Ethiopia will require a total investment of US$2.41 billion, of which US$1.63 billion is available, with a financing gap of US$780 million (32%). Envisaged sources of financing of OWNP in addition to the World Bank and the GoE, potentially include other External Financing Agencies, Non-Governmental Organizations (NGOs), participating communities in rural areas, and water utilities. Of the US$1.63 billion available to finance OWNP, about 52% is expected to be covered from the Government budget, 35% from donors, and 17% from other sources. 16 Counterpart funds include contributions from communities (estimated 10% for rural water supply facilities, and from small and medium towns (estimated between 10-30%). Details are provided in Annex 2. 17 Channel IA, is a fund flow mechanism whereby funds from donors are directly deposited to the designated account held by MoFED. Subsequent fund flows will be from MoFED to sectoral Ministries at federal level and to BoFED and WoFEDs through BoFED at regional level, while Channel 2 refers to fund flow mechanism through the sector institutions from national to regional, and woreda level implementing agencies. 9 (ii) Standard Implementation Manuals and Guidelines can be effective tools for managing key operational processes for large programs with multiple stakeholders under a programmatic approach. The development of such manuals and guidelines under WSSP helped to promote a harmonized approach and to support capacity building at the lowest levels. The guidance helped to improve implementation efficiency and overall sector coordination. A similar approach will be used for certain activities under this operation. (iii)A stepped approach to resource allocation can ensure that limited government resources are targeted to towns and rural communities that are capable and committed to improving their WSS systems. The WSSP incorporated a demand-driven, performance- based approach for allocating assistance. Towns and rural communities received access to financial and technical resources in steps, and had to meet certain targets before moving from one step to the next. A similar approach will be adopted under this operation. (iv) Community-Led Total Sanitation (CLTS) plus promotion of interpersonal hygiene is an effective hybrid approach to address multiple, complimentary practices for improved hygiene and sanitation.18 In the WSSP, the combination of CLTS plus individual or household hygiene promotion focusing on “doable actions” was found to be effective in increasing latrine coverage and reducing open defecation in Ethiopia. A CLTS approach will be included under the hygiene and sanitation promotion sub-component. (v) Safeguards: The ongoing Implementation Completion and Results Report (ICR) exercise on the closed WSSP has indicated that regular monitoring of adherence to safeguard requirements and proper documentation of mitigation measures are major gaps. In order to address this, the proposed project will include reporting on the status of compliance with ESMF, RPF and each Supplemental Social and Environmental Safeguard Instrument, as part of the Project Progress Reports. Lessons from Regional and International Experience (vi) A strong enabling environment, including sound institutional, governance, policy, and M&E frameworks, is essential for successful programmatic approaches. Experience from Tanzania and Uganda in implementing programmatic approaches has shown that committed government leadership, a well-articulated and realistic program operation document, well-developed and harmonized fiduciary systems, a credible and functional M&E mechanism, and robust information and data management, are imperative for a sector wide approach (SWAP) to be successful. However, as some of these critical prerequisites, particularly robust information flows and an M&E system are not yet fully in place, the project adopted a model that will allow for a gradual move towards a programmatic approach rather than a full-fledged SWAP. The proposed operation will support sector dialogue and capacity building efforts to improve the enabling environment in critical areas including M&E and fiduciary systems. The approach will be reviewed at a later stage during the Mid-Term Review for appropriate improvement if needed. 18 Source: Scaling Up Rural Sanitation: Learning by Doing: Working at Scale in Ethiopia: Water and Sanitation Program Working Note, July 2011 10 (vii) Increasing the likelihood of sustainability for rural water supply schemes requires a combination of public and private sector efforts and support interventions. The low demand for spare parts, particularly for point source hand pumps in Ethiopia, made it difficult to ensure availability of spare parts within a reasonable distance. WSSP financed a supply chain study in 2010 which created better awareness and provided menus of options for effective supply chain approaches. The study’s recommendations focused on supporting the private sector in establishing sub-regional outlets, and these will be taken into consideration under the new operation. Public entities such as district and local water departments also have an important role to play in providing ongoing technical support, and efforts will be made to build capacity and provide and maintain adequate support at these levels. IV. IMPLEMENTATION A. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS 35. In keeping with Ethiopia’s decentralized governance structure, the proposed WaSHP will be implemented as a joint effort between the Federal Government and WaSH units at various levels of local government19, in collaboration with development partners, training institutions, the private sector, community members, and other stakeholders. The proposed project implementation arrangements follow the same structures that were used under the WSSP. A Project Implementation Manual (PIM) will be developed by project effectiveness to provide detailed implementation steps and procedures to be followed. The PIM will outline the institutional and implementation arrangements for the project and the rules of engagement for planning, appraisal, contracting, and implementation. 36. National WaSH Implementation Structures: The highest governing body for program implementation will be the National WaSH Steering Committee (NWSC), whose members include Ministers and State Ministers from the Ministries of Water, Irrigation and Energy, Health, Education and Finance and Economic Development. The NWSC is chaired by the Minister of Water, Irrigation and Energy. The technical arm of the NWSC is the National WaSH Technical Team (NWTT) consisting of Directors from the four WaSH Ministries. A National WaSH Coordination Office (NWCO) will be responsible for coordinating, planning and overseeing Program implementation at federal level. The NWCO will report to the NWSC. Implementation of the Program in the sector Ministries will be the responsibility of WaSH Project Management Units (PMU) established within the relevant ministerial directorates. In addition the Water Resources Development Fund will be responsible for appraisal and monitoring and evaluation of projects proposed for medium towns. 37. Regional and Local WaSH Implementation Structures: At regional, zonal, and city levels, program planning and implementation will be coordinated by a WaSH Coordination Office which will report to a Regional WaSH Steering Committee and be supported by a Technical Team. Implementation will be managed by WaSH PMUs in the Bureaus of Water Resources, Health, Education and Finance and Economic Development. At the woreda level, program planning and implementation will be coordinated by a dedicated WaSH Team consisting of members from the Water, Health, Education, and Finance desks. The Woreda 19 Sub-national government levels include the regional level, the Woreda (or district) level, the Kebele (or village levels), and the community levels. 11 WaSH team will report to a Woreda WaSH Steering Committee appointed by the Woreda Cabinet. 38. At the kebele (municipal)20 level, WaSH plans will be approved by the Kebele Chairman, Development Officer and Council. Health Extension Workers will be tasked to support communities in construction of latrines and to promote safe hygiene practices. At the community level, WaSH committees (WaSHCOs) consisting of elected community members will be formed to undertake planning, operation and maintenance and in some cases construction of improved water supply and sanitation facilities. In addition, Health Development Armies (HDAs), which are a network of women, each of whom is responsible for five households in the community, will undertake promotion of sanitation and hygiene, and also support data collection and reporting of development in the sector from their end. In general, WaSHCO, HEWs and HDAs are important teams that will be engaged in WaSH at the village level. 39. WaSH plans will be initiated from the community/town residents and will be consolidated as they go to the next higher level. Woreda WaSH Teams (WWT) will prepare a Woreda Wide WaSH plan that articulates the priorities in the woreda, with clear implementation and procurement plans and costing. This needs to be endorsed by the Woreda Council and submitted to the regional level where it will be consolidated as part of the Regional WaSH Plan. Similarly, towns will prepare their WaSH plans with clear implementation arrangements. Likewise these need to be endorsed by the town administration/urban local government, prior to submission to be part of the Regional WaSH Plan. 40. Education and Health offices at the zone and regional level will be encouraged and resources will be made available to identify, plan, implement, monitor and evaluate activities on institutional sanitation and hygiene promotion. All plans need to be consolidated by regions for compilation at the national level and need to be disaggregated annually by major components. 41. The National and Regional WaSH Coordination Offices will be responsible for preparing consolidated WaSH plans and budgets, leading biannual Joint Technical Reviews, and preparing and submitting biannual project performance (physical and financial) reports. The Ministry of Finance and Economic Development, Regional Bureaus of Finance, and Woreda Finance Offices will be responsible for managing funds, preparing quarterly Interim Financial Reports (IFRs) and facilitating annual audits. 42. Funds Flow: IDA funds will be channeled to the implementing agencies through MoFED, BoFED and WoFEDs (Channel 1A21). IDA funds will be deposited into a segregated US$ currency “Designated Account” at the National Bank of Ethiopia on terms and conditions acceptable to the World Bank. Resources will then be transferred to a local currency (ETB) account, to be managed by MoFED. The flow of funds to each implementing entity will be made according to their respective annual work plans and budgets. From the local currency account, MoFED will transfer funds to the local currency accounts to be opened by the regions (BoFED) and other federal level implementing entities (MoWIE, MoE, MoH, etc.). The regions will then transfer resources to woredas/WoFED and zones and other implementing entities at the regional 20 Municipal is for urban settings while Kebele is for rural. 21 Channel IA, is a fund flow mechanism whereby funds from donors are directly deposited to the designated account held by MoFED. Subsequent fund flows will be from MoFED to sectoral Ministries at federal level and to BoFED and WoFEDs through BoFED at regional level, while Channel 2 refers to fund flow mechanism through the sector institutions from national to regional, and woreda level implementing agencies. 12 level (BoWE, BoE, BoH, etc.). A detailed description of the funds flow mechanism is presented in Annex 3. At MTR, progress towards a programmatic approach in particular compliance with IDA’s fiduciary and safeguard requirements for pooling resources with other financers will be examined for potential restructuring of the flow of funds. B. RESULTS MONITORING AND EVALUATION 43. Responsibility for monitoring and evaluation (M&E) of progress towards achievement of project development results will be allocated at the federal, regional, and local levels. At the federal level, overall responsibility for M&E will lie with the National WaSH Coordination Office (NWCO), which will work in close coordination with the WaSH Coordination Offices and Bureaus at the regional levels. The regional WaSH Coordination Offices/Bureaus will monitor activities at the regional and woreda levels while the Woreda WaSH Team will monitor activities at the woreda, kebeles and village levels. Every six months, project performance reports (financial and physical) will be prepared by MoWIE, MoE, MoH, MoFED at federal level and their respective bureaus and offices at regional and woreda/town levels. The project performance reports generated by the WaSH implementing bodies at each level will be consolidated by their respective WaSH coordination offices and submitted to the next level of WaSH coordination office. The NWCO will consolidate the biannual project performance report and submit it to the Bank not later than 45 days after end of the reporting period. Federal and regional PMUs as well as national and regional WaSH coordination offices will each appoint or hire a dedicated M&E staff that will be responsible for the coordination of M&E activities. The Channel One Program Coordination Unit (COPCU) at MoFED will be responsible for consolidating quarterly IFRs submitted from regional Bureaus of Finance and Economic Development (BoFEDs), and will also facilitate annual external audits of the program accounts. 44. Baseline data on selected indicators for water, sanitation, and hygiene are taken from the NWI whenever appropriate. The annual NWI update, disaggregated for specific participating regions, will be used to track implementation progress by the IDA-financed activities. In addition to data from annual NWI updates, results will be triangulated with data from annual reports generated from the Education and Health sector Management Information Systems (MISs), as well as the Demographic and Health Survey (DHS), and the Welfare Monitoring Survey (WMS) produced by GoE’s Central Statistical Agency every few years. A computerized and web-based Water Supply, Sanitation and Hygiene M&E/MIS – providing timely and accurate information on project and program implementation – has been developed, piloted and rolled out in about 300 woredas in the country. Until the M&E/MIS is rolled out nationwide, MoWIE will ensure that the original NWI data is accessible at regional, zonal, and woreda levels, in appropriate format for the annual report update and consolidation at each level. The hiring and training of the required M&E staff at each level will be funded under the Project Preparation Advance and continued regular financing after effectiveness. 45. In the Project Management Monitoring and Evaluation Component (Component 3), the project will provide technical assistance and capacity building to strengthen data collection and M&E capacities at all levels for the sector at large. These activities will include, inter alia, activities to continue supporting the above-mentioned rollout of the ongoing sector MIS/M&E to cover the whole country and ensure full operationalization of the system by Mid-Term Review (MTR). Capacity building efforts will also include initial and periodic refresher and on the job trainings in M&E for federal and regional PMUs as well as national and regional WaSH coordination M&E staffs. In addition, meetings, workshops and training events will be 13 conducted as required during program implementation to further develop and fine-tune the M&E system and to build local capacity to manage it. 46. At the end of the second year, a MTR will be conducted to assess the overall performance of the program and its progress towards achieving its development objectives. The MTR will be used to assess the efficacy and effectiveness of the project design and implementation approach and the need to make adjustments as necessary. To assess the likelihood of sustainability and the quality of service provided, a user satisfaction survey will be conducted at the MTR stage and at project completion. User satisfaction will be assessed in relation to factors such as: household satisfaction with the performance of their water system operation and maintenance and the WaSHCOs/water utilities; affordability of service charges/tariffs; the quantity and continuity of service; and the perceived quality of water supply (taste, color and odor). 47. The NWCO, in collaboration with National and Regional WaSH Technical Teams and other donors working in the sector, will organize WaSH Multi-Stakeholder Forums (MSFs) to enhance and promote coordinated donor efforts on sector policy dialogue. The MSF and the Joint Technical Review (JTR)22, which worked well under the WSSP, will bring financiers, beneficiaries, civil society organizations (CSOs) and implementing bodies together on a regular basis to track implementation progress and provide timely feedback for improvement. In the past, the MSF served as a platform for enhancing dialogue among donors and government and promoting implementation of strategic interventions in the sector. C. SUSTAINABILITY 48. Experience in the WSS sector has shown that the impact of multiple social, economic, technical, institutional, or environmental factors operating over a long period of time may influence the sustainability of WSS services in both rural and urban areas. Based on lessons learned from similar projects, the project design will work towards strengthening and supporting sustainability of systems through activities aimed at, inter alia: (i) Supporting the involvement of beneficiary communities and strengthening the participation and role of women in all cycles of project design and implementation; (ii) Strengthening the units responsible for post-construction support at all levels; (iii)Supporting the enabling environment for active participation of the private sector to support operation and maintenance; (iv) Supporting continuous and respectively periodical refresher trainings for user communities and utility operators/water boards; and (v) Supporting the choice of appropriate technologies, such as water lifting devices during scheme design and implementation. 49. In order to ensure financial and economic long term sustainability of the sector, the project will support implementation of the GoE’s cost recovery policy, promoting community contribution and cost sharing in the project design for rural services. It will also support activities 22 Multi-Stakeholder Forum (MSF) is an annual event that brings together stakeholders from government, donor partners, civil society organizations, and the private sector to review progress in the WaSH sector and to agree on key strategic undertakings to be jointly pursued during the year ahead. As such, the MSF is designed to improve communication between stakeholders, as well as supporting the mutual objectives of coordination, harmonization and alignment among partners across the implementing sectors. Joint Technical Review (JTR) is a semi-annual review process that brings together the Government and all major WaSH donors to review program implementation including progress and challenges. These reviews provide an excellent opportunity for “big picture” learning and strategic problem solving. 14 to improve operational efficiency of urban water supply by financing activities which will reduce system losses through leak detection programs, metering of consumers and encouraging conservation, streamlining sector institutions, and adopting modern management methods for the services. V. KEY RISKS AND MITIGATION MEASURES A. RISK RATINGS SUMMARY TABLE Table 3: Risk Rating Summary Table Risk Category Rating Stakeholder Risk Moderate Implementing Agency Risk - Capacity Substantial - Governance Moderate Project Risk - Design Moderate - Social and Environmental Moderate - Program and Donor Substantial - Delivery Monitoring and Substantial Sustainability Overall Implementation Risk Substantial B. OVERALL RISK RATING EXPLANATION 50. The overall implementation risk is considered to be Substantial given the risks associated with three key aspects: (i) implementing agency capacity; (ii) program and donor; and (iii) delivery monitoring and sustainability. While limited implementation capacity, including inadequate coordination between WaSH agencies at different levels poses a Substantial risk that may affect implementation progress, lessons learned from WSSP have been factored into the project design to improve coordination. In addition, the project will finance capacity building interventions at each level to support program implementation (financial management, procurement, contract management and safeguards) and to put in place improved systems for monitoring and evaluation. The delivery, monitoring and sustainability risk is rated Substantial given potential challenges associated with managing M&E under a decentralized setting, and risk of delays in timely rollout and update of the WaSH MIS systems, including the NWI. The project has included a specific line item to support strengthening the sector M&E, including a back-up system to monitor the IDA-financed activities. Program- and donor-related risks are also currently rated as Substantial pending finalization of ongoing dialogue on implementation modalities for the broader OWNP, acceptable to all key donors. 51. In addition to the risk described above, the World Bank may incur reputational risks due to the geographic overlap between WaSHP and the government’s commune program. The 15 commune program involves clustering of dispersed populations within a kebele (sub-district) into receiving communities to allow more efficient provision of basic services. The WaSHP is expected to be implemented in participating Woredas /communities/towns in all regions of the country. Thus, there may be an overlap of the project intervention areas with areas in which the government’s commune program has been or will be implemented. To manage the above risk the project will take the following measures: (i) Appraisal of woreda WaSH plans in areas of overlap with the government’s commune program includes additional screening to ensure that there are no related social issues which have not been managed in a manner and degree acceptable to the Bank. (ii) The community participation in the WaSH planning process will ensure that community priorities are included in the plan and are financed, subject to technical and budget constraints, under the project. (iii) OP4.12 has been triggered, and a Resettlement Policy Framework is in place, which would govern any involuntary resettlement resulting from the project. VI. APPRAISAL SUMMARY A. ECONOMIC AND FINANCIAL ANALYSIS 52. Cost-benefit analysis is used to assess financial and economic viability of the water supply and sanitation project interventions at the community and town level and the sensitivity to key variables. With and without project scenarios are defined in order to identify the incremental costs and benefits of the project. Cash flows are discounted at 10.23 percent, a discount rate developed by MoFED as a proxy for the opportunity cost of capital in Ethiopia (MoFED, 2007). The analysis considers the stream of costs and benefits over a 10 year period (2014-2024) for rural water supply point source systems and over a 15 year period (2014-2029) for rural and urban piped systems. 53. A separate analysis was done for the RWSS and UWSS components of the project. In estimating the cost of the project, per capita cost from OWNP and experience from the recently closed WSSP is used. Costs include all project costs, and benefits streams that accrue from: (i) time savings from fetching water; (ii) reduced health costs due to increased availability of safe water and sanitation facilities and increased knowledge of good sanitation and hygiene practices, and; (iii) improved sustainability of water supply. 54. There are several other potential benefits that are not factored into the cost-benefit analysis described above because of lack of reliable data. Some of these include: income gained as a result of reduced absenteeism of the working age population and caretakers due to reductions in illness for children and adults; opportunity cost of school absenteeism among the targeted school age population; estimated value of loss of life avoided as a result of improvements in water and sanitation; the environmental benefits of reduced release of untreated waste water; capacity improvement in public and private sector; reduction in girls’ school drop-out rates; and women’s empowerment, among others. Therefore, the estimated benefits from the sanitation component of the project can be considered conservative, and it can reasonably be assumed that the actual benefits will be much higher than this. 55. Results of the project economic viability as measured by the Net Present Value (NPV) and Economic Rate of Return (ERR) and its sensitivity analysis to key project components are summarized on the table below: 16 Table 4: Summary of Economic Analysis No Description NPV US$ million ERR (%) 1 RWSS Base case $31.7 24.2% 20% cost increase $18.9 12.8% 20% revenue reduction $12.3 11.1% 2 UWSS Base case $50.0 23.8% 20% cost increase $40.1 19.8% 20% revenue reduction $30.1 19.0% 3 Combined (Urban + Rural) Base case $123.5 45.3% 20% cost increase $67.0 20.3% 20% revenue reduction $83.6 33.7% 56. The NPV amounting to US$124 million indicates the significant impact that the project will have for all economic agents, including the beneficiary communities. An analysis of the project sensitivity test results at 20 percent increase in cost and 20 percent reduction in benefits shows that the rate of return and the net present value remain at acceptable levels (the internal rate of return remains higher than the 10 percent opportunity cost of capital in all cases and NPVs are found to be positive), thus confirming the viability of the project. It is assumed that the maximum monthly water bill affordable for beneficiaries in urban and rural areas is 5 percent of household income. This implies that households can afford up to ETB 21 monthly payment which is 5 percent of the minimum wage (ETB 420). The operational cost assumed by the analysis is a maximum of ETB 5 per month for rural Piped Systems (RPSs). 57. While connection fees typically involve a one-time payment, they can create a financial barrier for poor urban households to connect to the service financed by the project. The project will therefore finance some pro-poor measures such as provision of yard taps and/or promote facilitation of credit mechanisms by the utilities to spread the one time financial burden over a longer period. Beneficiary communities will be involved in the planning process for the provision of their water supply and public sanitation facilities. 58. Financial Analysis: The Government has adopted a policy of gradual full cost recovery for urban water supply systems and recovery of operation and maintenance expenses for rural communities, so that investments in water supply can be sustainable. The project assists the Government in providing safe water to households, promoting gradual cost recovery over time, creating an enabling environment including capacity building and decentralized management of water supply operations, and setting up of autonomous water enterprises and private companies which are run on a commercial basis. The performance-based stepped approach, focus on capacity building, involvement of beneficiaries in choice of affordable technologies, per capita ceilings on grants, the credit-worthiness test for sub-loan towns, and the sub-project based analysis, are major instruments to ensure financial sustainability of the project. 59. The project is expected to reduce government contributions to investment, operating and maintenance costs by giving beneficiaries their choice of affordable technologies, improved design and implementation capacity for cost effective systems, increased user contributions to investment and operating cost and increased life of facilities. 17 B. TECHNICAL 60. The project design will address both rural and urban water supply, sanitation, and hygiene aspects, in order to contribute to the OWNP. It takes into consideration lessons from WSSP as well as global best practices for water supply and sanitation and hygiene under similar conditions. 61. Rural Water Supply: The project will finance about 6,300 community water supply schemes, as well as institutional water facilities in selected schools and health facilities in participating areas. The investments will be based on appropriate technologies in line with the options considered under the OWNP, based on factors such as hydrogeological formation and availability of sources, cost effectiveness and affordability considerations, population and settlement patterns, and operation and maintenance costs, among others. Technology options include, but are not limited to: hand dug wells, shallow wells, protected springs, small piped systems, and rainwater harvesting. In addition, the project will support capacity building activities to strengthen and sustain capacity of beneficiary woredas and communities to effectively plan, implement and manage their water supply systems. 62. Rural Sanitation and Hygiene: For rural sanitation, the project will focus on two main aspects: (i) promotion of improved sanitation and hygiene practices among beneficiary communities, based on approaches such as CLTHS and Sanitation Marketing; and (ii) support for investments in improving institutional sanitation facilities, mainly in schools and health facilities. 63. Urban Water Supply: Urban Water supply activities will focus on two aspects: (i) investments aimed at improving the water production and distribution systems in about fifty small towns and twenty medium towns, to cover rehabilitation and expansion of services and immediate measures to improve service delivery based on identified priorities; and (ii) strengthening the capacity of participating water boards, committees and operators to effectively manage their water supply facilities and improve their operational efficiency. 64. Urban Sanitation and Hygiene: The project will support: (i) investments to improve sanitation in low income areas, such as communal and public latrines; (ii) priority fecal sludge management facilities such as sludge drying beds, and provision of desludging equipment for small and medium- towns; (iii) sanitation and hygiene promotion activities; (iv) preparation of an urban sanitation strategy and supporting studies relating to urban sanitation, such as in low income areas, and other pertinent issues; and (v) strengthening the capacity of municipalities to effectively manage their sanitation facilities. C. FINANCIAL MANAGEMENT 65. A financial management (FM) assessment was conducted in accordance with the Financial Management Manual issued by the Bank’s Financial Management Sector Board on March 2010. The objective of the assessment was to determine whether the participating institutions have adequate financial management systems and related capacity in place which satisfies the Bank’s Operation Policy/Bank Procedure (OP/BP) 10.00. The assessment also included the identification of key perceived financial management risks that may affect program implementation and proceeded to develop mitigation measures against such risks. The assessment was conducted of federal, regional and woreda level implementing entities selected on a sample basis. 18 66. The project financial management arrangements will be coordinated and managed by the MoFED at the federal level, BoFED in the regions and WoFED at woredas. The FM arrangements largely follow the existing arrangement with measures to address lessons and challenges noted in the WSSP. The project will continue to follow the Government’s Channel IA fund flow mechanism. Based on the assessment conducted, the proposed FM arrangements meet the IDA requirements as per OP/BP 10.00. It is adequate to provide, with reasonable assurance, accurate and timely information on the status of the project required by IDA. However, action plans were agreed to address some of the weaknesses observed. The residual FM risk, after implementation of mitigation measures, is rated as Substantial. Detail FM arrangements are documented in the FM assessment report where key aspects are summarized under Annex 3. D. PROCUREMENT 67. Procurement under the project to be financed from IDA, would be carried out in accordance with: (i) "Guidelines: Procurement of Goods, Works, and non-Consulting Services Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011; (ii) "Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011; (iii) “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants” dated October 15, 2006 and revised in January, 2011; (iv) introduction of Exceptions to National Competitive Bidding Procedures; and (v) the provisions stipulated in the Legal Agreements. Bank standard documents shall be used for procurement of goods and works through International Competitive Bidding (ICB) and for all consultants exceeding US$200,000. National Competitive Bidding (NCB) will use government standard bidding documents and procedures subject to the exceptions included in Annex 3. 68. A Procurement Plan acceptable to the Bank covering at least the first eighteen months of the project was prepared prior to negotiations. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame would be agreed between the Borrower and IDA task team in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 69. A General Procurement Notice (GPN) will be prepared and published in United Nations Development Business (UNDB), on the Bank’s external website and in at least one national newspaper after the project is approved by the Bank Board, and/or before project effectiveness. Specific Procurement Notices for all goods and works to be procured under ICB and Expressions of Interest for all consulting services to cost the equivalent of US$200,000 and above would also be published in the UNDB, Bank’s external website and the national press. 70. Procurable items under the project will include Civil Works related to provision of water supply facilities both in urban and rural areas, Goods such as pipes and fittings and electromechanical equipment, vehicles, IT equipment, and Consultancy Services for design and supervision of the water supply related works. Procurement under the project will be carried out by MoWIE, Regional Bureaus of Water Resources (BoWRs), Town utilities, woredas and community groups, each based on its limit and as allowed in the approved procurement plans. The MoWIE’s Project Management Unit will play the critical role of coordination, monitoring, 19 capacity building and facilitation of prior review contracts with the Bank. The MoWIE will also compile vehicle procurement requirements under the project from the different stakeholders, if the need arises, and will procure centrally all vehicles and distribute same to respective agencies. The regional BoWRs shall compile procurement plans from their respective towns and Woredas and submit such procurement plans for the MoWIE which in turn compile the procurement plans from all regions and submit for the Bank’s review and approval. 71. Procurement risk assessment of the project based on lessons from the recently closed WSSP project and the recent Post Procurement Reviews was undertaken by the Bank. The assessment covered procurement arrangements and gaps in the different layers of project implementing bodies and has made a number of recommendations. In addition to the implementing bodies, the assessment also looked into risks related to sectoral supply market conditions. The complete assessment report is included in Annex 3. The main risks identified include: (i) limited coordination, monitoring, and support from the MoWIE PMU; (ii) absence of updated procurement plans and contract registers; (iii) inadequate procurement staff and high turnover; (iv) poor record keeping; (v) capacity limitations in bidding process and contract administration; and (vi) market limitations, among others. Given the highly decentralized nature of project implementation, Independent Procurement Audits will be undertaken annually and the report will be shared with the Bank. The MoWIE will select the procurement audit firm that will undertake procurement audits for two consecutive years through a Bank prior review process. 72. For the identified risks, the main recommendations for the MoWIE include: (i) recruit and assign six Procurement Specialists and two Contract Administration Officers in the PMU; (ii) prepare a format for procurement status and contract administration follow-up, for regular reporting in an agreed format; and (iii) take responsibility of all project vehicle procurement, including for regional offices. 73. At the regional BoWRs, recommendations include: (i) renewal or suspension of regional delegations based on an annual performance review; (ii) uninterrupted deployment of a recommended number of qualified Procurement Specialists in each region, including Oromiya 4, Amhara 3, SNNP 3, Tigray 2, and one each in Afar, Gambela, Somali, Benishangul-Gumez, Harari and the chartered city of Dire Dawa; (iii) provide adequate office space and facilities for procurement staff, and keep procurement documents in a way that can be retrieved easily when required; (iv) develop and implement an accountability framework; (v) regularly compile and submit updated procurement plans and contract registers; (vi) establish quality assurance system on bidding documents; (vii) establish a strong contract administration and monitoring system, and regularly report on status of activities using agreed formats. The assessment has also made further recommendations for procurement activities that will be implemented at the town, woreda and community level. The assessment regarding risks on market conditions identified four major risk areas: (i) limitations of drilling companies; (ii) few bidders for pipes and fittings and for electromechanical equipment; (iii) civil works contractors’ capacity and delays; and (iv) participation of Government-Owned Enterprises. The assessment has identified issues associated with these risk areas and provided recommendations. E. SOCIAL (INCLUDING SAFEGUARDS) 74. The project’s anticipated social impacts have triggered OP/BP 4.12 and OP/BP 4.10, and in keeping with good practice established under WSSP, this project has put in place mitigation mechanisms acceptable to the World Bank to mitigate these impacts. For impact on land and 20 properties, the Resettlement Policy Framework (RPF) used under WSSP has been updated and customized to the specificity of the WaSHP to address any potential impacts, which are expected to be site specific and minor. The Bank’s OP 4.10 is triggered based on the screening conducted by the World Bank and reinforced by the constitution of Ethiopia, which indicate that the majority of the target population identify themselves as having the characteristics defined under OP 4.10. Therefore, a social assessment (SA) was conducted to complement the RPF. A summary of the project’s Social Safeguards aspects is provided below. 75. Involuntary Resettlement (OP/BP 4.12): This policy is triggered by the project due to some of the planned rehabilitation and construction activities under Components 1 & 2. Since specific investment locations cannot be identified at this stage, a Resettlement Policy Framework (RPF) has been prepared and consulted upon, and was disclosed in country on November 28, 2013 and at the Bank’s Infoshop on December 3, 2013. The RPF aims to ensure that appropriate measures are in place to address any issues which might arise from potential land acquisition and/or restriction of access to communal natural resources under the project. When the investment sites are identified, the Borrower will prepare a Resettlement Action Plan (RAP) for the sites. 76. OP/BP 4.10: The project may affect or involve underserved peoples as they are known in the Ethiopian context. Based on the screening conducted by the World Bank, the majority of the people in the project area meet the criteria of OP 4.10. 77. Because the project triggered OP/BP 4.10, an enhanced social assessment (SA) was conducted to complement the RPF. The assessment identifies key socio-economic factors that require consideration, identified vulnerable and historically underserved groups that may be excluded from the project and be adversely affected as a result, and recommends appropriate mitigation measures for addressing the Bank’s requirements on social safeguards policies triggered by the project. Key stakeholders were consulted in the woredas, kebeles, and communities, including identified vulnerable and historically underserved groups (meeting the OP 4.10 criteria) to seek their broad support for the project and emphasize the importance of WaSH services for themselves and their families. 78. Main results of Social Assessment: The social assessment highlighted poverty, gender, and spatial disparities as among the main social challenges and key factors affecting people’s abilities to access WaSH services. Specifically: (i) gender disparities are exacerbated by low participation in planning, implementation and post-implementation maintenance of WaSH facilities, especially for women in historically underserved areas; (ii) weak capacity of the project implementing entity; (iii) people living in rural areas, urban slums, informal settlements, and the emerging regions, and pastoralists (particularly in Afar and Somali) are underserved by WaSH services; (v) data collection and monitoring system for the WaSH sector has yet to consider the full range of vertical differences within underserved populations and vulnerable groups; and (vi) universal coverage may best be achieved by an equity approach, explicitly targeting the hard-to-reach within underserved regions and populations. 79. Consultation related to safeguards issues: Key community stakeholders were consulted on project components, implementation arrangements and safeguards instruments, in accordance with the Bank’s operational policies. Meetings with community members and civil society organizations, including identified vulnerable and historically underserved groups, sought broad community support for the project and to share key project design principles and features. These consultations were also aimed at listening to all key stakeholder groups, seeking feedback and 21 consensus and incorporating comments, suggestions and remedial proposals into the various safeguards instruments. The results indicate that overall, project-affected people were pleased that water supply had been extended to their woreda. For poorer people, however, women and men, the high cost of supply and the poor functionality of some of the water points meant they did not perceive any tangible benefits from the program. The poor reported the most difficulty in accessing safe water or usable latrines, due in part to their weak voice in decision-making, planning and post-implementation maintenance of WaSH services. 80. Monitoring of the main social impacts: The project has incorporated lessons learned into its design features for better project implementation performance and social impact management. The implementing agencies will set their own verifiable indicators to assess the degree of key stakeholder participation during all phases of project implementation. Beneficiary representatives will participate in all M&E, field visits, discussions with government officials, and during IDA missions. The project’s social impact will be monitored through: (i) annual reviews by the regional offices, using a methodology to be developed during the first year of implementation; (ii) a survey of at least 1,000 stakeholders at MTR to understand the project’s perceived successes and weaknesses; and (iii) another stakeholder survey will be conducted at project completion. Monitoring of specific service delivery targets will include a participatory feedback system such as questionnaires, radio phone-in programs, and meetings to gather feedback on project results. 81. The findings of the SA and a detailed summary of the main issues raised by the beneficiaries during the consultation process are outlined in each of the project components and included in the Annex 5. F. ENVIRONMENT (INCLUDING SAFEGUARDS) 82. The project environmental impact is classified as Category B. The environmental and social safeguard issues of the project are primarily associated with rehabilitation and construction activities under Components 1 and 2. Five safeguards polices have been triggered: (i) OP/BP 4.01 Environmental Assessment; (ii) OP/BP 4.11 Physical Cultural Resources; (iii) OP/BP 4.10; (iv) OP/BP 4.12 Involuntary Resettlement; and (v) OP/BP 7.50 Projects on International Waterways. The overall environmental impacts of the project are expected to be positive, especially as planned activities will supply safe drinking water and sanitation facilities resulting in health and economic benefits. However, some limited negative impacts may arise largely related to drilling of wells and development of surface water. The negative impacts will be localized and can be avoided or reduced with proper mitigation measures. 83. The Environmental and Social Management Framework (ESMF) and the RPF will be used to address negative environmental impacts of the project. The ESMF was disclosed in-country on November 28, 2013 and through the Bank’s InfoShop on December 3, 2013 in accordance with the Bank requirements. 84. Projects on International Waterways (OP/BP 7.50): OP 7.50 is triggered because project interventions are expected to be spread across twelve river basins in Ethiopia which are classified as international waterways for purposes of OP 7.50. They include inter alia, the Merb, Tekeze, Abbay and Baro Akobo Rivers. Riparian countries of international waterways impacted by this project include Djibouti, Egypt, Eritrea, Kenya, Somali, South Sudan and Sudan. It is not anticipated that the project will cause appreciable harm to any of the riparian through water 22 deprivation, pollution or otherwise. Neither is it anticipated that the implementation of project activities will adversely change the overall quantity or quality of water flowing to or from any of the riparian of the concerned international waterways. Nevertheless, the Bank notified riparian Governments on behalf of Ethiopia, regarding the relevant details of the proposed project, pursuant to paragraph 4 of OP 7.50. 23 ANNEX 1: RESULTS FRAMEWORK AND MONITORING . Country: Ethiopia Project Name: Water Supply, Sanitation and Hygiene Project (P133591) . Results Framework . Project Development Objectives . PDO Statement The proposed development objective of the project is to “increase access to improved water supply and sanitation services for residents in participating woredas, towns, and communities in Ethiopia”. These results are at Project Level . Project Development Objective Indicators Cumulative Target Values Data Source/ Responsibility for Indicator Name Core Unit of Measure Baseline YR1 YR2 YR3 YR4 End Target Frequency Methodology Data Collection WaSHCOs, WWTs and National and Number of people water utilities Regional WaSH in rural areas through Coordination provided with Annual NWI Offices, WaSH Number 0 82,000 407,000 1,089,500 1,383,000 1,627,000 Annual access to Improved updates and Ministries, and Water Sources data from Regional WaSH under the project education and Bureaus (Education, health MIS. Health, and Water) JTR and MSF Number of people National and water utilities in urban areas Regional WaSH through annual provided with Coordination Number 0 50,000 250,000 550,000 850,000 1,001,000 Annual monitoring access to Improved Offices, Ministry of updates, from Water Sources Water, and Regional JTR and MSF under the project BoWRS People provided WaSHCOs, National and with access to Number 0 68,800  341,400  915,200  1,161,700  1,366,700  Annual WWTs and Regional WaSH “improved water utilities Coordination 24 sanitation through Offices, WaSH facilities”- rural Annual NWI Ministries, and updates and Regional WaSH data from Bureaus (Education, education and Health, and Water) health MIS. JTR and MSF WaSHCOs, WWTs and National and water utilities Regional WaSH People provided through Coordination with access to Annual NWI Offices, WaSH “improved Number 0 3,500  17,000  37,200  57,500  67,500  Annual updates and Ministries, and sanitation data from Regional WaSH facilities”- Urban education and Bureaus (Education, health MIS. Health, and Water) JTR and MSF WaSHCOs, WWTs and National and Direct project water utilities Regional WaSH through Coordination beneficiaries Number 132,000  657,000  1,639,500  2,233,000  2,628,000  Annual NWI Offices, WaSH (number), of % female 0  50%  50%  50%  50%  50%  Annual updates and Ministries, and which female data from Regional WaSH (percentage) education and Bureaus (Education, health MIS. Health, and Water) JTR and MSF . Intermediate Results Indicators Cumulative Target Values Data Source/ Responsibility for Indicator Name Core Unit of Measure Baseline YR1 YR2 YR3 YR4 End Target Frequency Methodology Data Collection Component 1: Rural Water Supply, Sanitation and Hygiene Annual NWI National and 1. Improved updates and Regional WaSH community water JTRs; Coordination points Number 0 315 1,575 3,465 5,355 6,300 Semi Annual Contractors Offices, Ministry of constructed or and Regional Water, Irrigation rehabilitated and Local and Energy, and under the project WaSH reports Regional BoWRS 2. Improved water Regional and Annual NWI supply schemes Percentage 25% 22% 19% 16% 13% 10% Semi Annual Local WaSH updates and JTRs; that are not Coordination Regional and Local 25 functional in the Offices WaSH Coordination program woredas Offices 3. Woredas with Annual NWI prepared and Regional and updates and JTRs; approved RWSS Local WaSH Percentage 50% 53% 55% 70% 70% 70% Semi Annual Regional and Local programs and Coordination WaSH Coordination established Offices Offices WWTs. National and 4. People trained to WaSHCOs, Regional WaSH improve hygiene WWTs, Coordination behavior/sanitati HEWs, project Offices, WaSH Number 0 48,810 244,050 536,910 829,770 976,200 Semi Annual on practices monitoring Ministries, and under the project. reports and Regional WaSH (male/female) JTR Bureaus (Education, Health, and Water) WaSHCOs, WWTs, 5. Kebeles declared through annual National and and verified NWI updates Regional WaSH Percentage 17% 20% 33% 52% 71% 80% Semi Annual ODF in the and project Coordination program woredas monitoring Offices reports and JTR WaSHCOs, WWTs, HEWs National and and water Regional WaSH 6. Improved utilities Coordination latrines through annual Offices, WaSH Number 0 14,655  72,634  194,719  247,174  290,783  Semi Annual constructed NWI updates Ministries, and under the project and project Regional WaSH monitoring Bureaus (Education, reports and Health, and Water) JTR National and 7. Institutional WaSHCOs, Regional WaSH WaSH facilities WWTs, HEWs Coordination constructed/ and project Offices, WaSH rehabilitated in Number 0 260 1,300 2,860 4,420 5,200 Semi Annual monitoring Ministries, and Schools and reports and Regional WaSH health facilities JTR Bureaus (Education, under the project Health, and Water) Component II Urban Water Supply, Sanitation and Hygiene 26 WaSHCOs, and water National and 1. Water utilities utilities, and Regional WaSH that the project Number 0 20 40 70 70 70 Semi Annual project Coordination is supporting monitoring Offices reports and JTR WaSHCOs 2. Additional and water Volume water utilities; National and produced from 3 Contractors, Regional WaSH M /day 0 0 7,500 16,500 25,500 30,000 Semi Annual improved project Coordination source under monitoring Offices the project reports and JTR WaSHCOs 3. Participating and water towns that have National and utilities, established Regional WaSH Percentage 0 20 40 70 70 70 Semi Annual project water boards Coordination monitoring and have Offices reports and business plans JTR WaSHCOs, 4. Public and WWTs, HEWs Communal and water National and Latrines utilities Regional WaSH rehabilitated Number 0 135 225 315 405 450 Semi Annual through Coordination /constructed project Offices under the monitoring project reports and JTR Component III Project Management Monitoring and Evaluation 1. Trained PMU staff at WaSH sector WaSHCOs, National and Ministries and project Regional WaSH their respective Number 0 144 240 336 432 480 Semi Annual monitoring Coordination regions and reports and Offices program JTR woredas (male/female) 2. Trained WWT, WaSHCOs, National and WaSHCO/ Number 0 1,158 1,930 2,702 3,474 3,860 Semi Annual WWTs, HEWs Regional WaSH Water Board and water Coordination 27 members utilities Offices (male/female) through project monitoring reports and JTR 28 Indicators and description Project Development Objective Indicators Indicator Name Description (indicator definition etc.) Number of people in rural areas provided with access to This indicator measures the actual number of people in rural areas who benefited from Improved Water Sources under the project improved water supply services that have been constructed under the project. Guidance on "improved water sources": "Improved water sources" include piped household connections (house or yard connections), public standpipe, boreholes, protected dug well, protected spring and rainwater collection. Hence, "Improved Water Sources" do not include, inter alia, water provided through tanker truck, or vendor, unprotected well, unprotected spring, surface water (river, pond, dam, lake, stream, irrigation channel), or bottled water. The definition of what is considered an ‘improved water source' follows the UNICEF-WHO Joint Monitoring Program definition. Note that "Improved Water Sources" does not refer to the question of new versus rehabilitated water sources, but is the standard definition used to track progress on the Millennium Development Goals. Guidance on people with access: The data on the number of people provided with access can be estimated by TTLs by multiplying i) the actual number of piped connections with an estimate of the number of people per household connection; and/or ii) the actual number of community water points with an estimate of the number of people per community water point. The assumptions made regarding number of people per connection made should be carefully documented in the ‘comments' section of the indicator when data is entered in the ISR. Guidance on rural classification: The classification should follow the official definition used in the country. Number of people in urban areas provided with access to This indicator measures the actual number of people in urban areas who benefited Improved Water Sources under the project from improved water supply services that have been constructed under the project. Guidance on "improved water sources": Improved water sources include piped household connections (house or yard connections), public standpipe, boreholes, protected dug well, protected spring and rainwater collection. Hence, "Improved Water Sources" do not include, inter alia, water provided through tanker truck, or vendor, unprotected well, unprotected spring, surface water (river, pond, dam, lake, stream, irrigation channel), or bottled water. The definition of what is considered an ‘improved water source' follows the UNICEF-WHO Joint Monitoring Program definition. Note that "Improved Water Sources" does not refer to the question of new versus rehabilitated water sources, but is the standard definition used to track progress on the Millennium Development Goals. Guidance on people with access: The data on the 29 number of people provided with access can be estimated by TTLs by multiplying i) the actual number of piped connections with an estimate of the number of people per household connection; and/or ii) the actual number of community water points with an estimate of the number of people per community water point. The assumptions made regarding number of people per connection made should be carefully documented in the ‘comments' section of the indicator when data is entered in the ISR. Guidance on urban classification: The classification should follow the official definition used in the country. According to OWNP Small towns include towns with population of less than 20,000 people while medium towns comprises towns with population between 20,000 and 100,000 people (OWNP, 2013) People provided with access to "improved sanitation This indicator measures the cumulative number of people who benefited from facilities” under the project. improved sanitation facilities that have been constructed under the project. This includes people newly provided with access to “improved sanitation facilities” and does not include people benefiting from rehabilitation works. The baseline value is expected to be zero. People provided with access to “improved sanitation Same as above facilities”- rural . Intermediate Results Indicators Indicator Name Description (indicator definition etc.) Improved community water points constructed or Number of improved community water points constructed or rehabilitated under the rehabilitated under the project project in rural and urban areas. A community water point is defined as a public outlet for the provision of water supply to a number of households. Improved community water points refer to standpipes, protected dug well, borehole, or protected spring. Hence, improved community water points do not include, inter alia, unprotected wells or unprotected springs. % of improved water supply schemes that are not Nonfunctional schemes are schemes that are found not functional at time of functional in the program Woredas monitoring/ during spot-checks % of Woredas with prepared and approved RWSS The percentage of woredas with prepared and approved RWSS programs and programs and established WWTs. established WWTs compared to the total number of woredas benefiting from the project. People trained to improve hygiene behavior/sanitation This indicator measures the cumulative number of people who have participated in a practices under the project training activity to conduct improved hygiene behavior or sanitation practices. This does not include people who have been educated and/or informed through public information or mass publication campaigns. 30 The baseline value for this indicator is expected to be zero. People trained to improve hygiene behavior/sanitation Same as above practices – female % of kebeles declared and verified ODF in the ODF Kebeles are Kebeles declared and verified open defecation free participating program woredas Improved latrines constructed under the project This indicator is measured as the cumulative number of improved latrines constructed under the project. The baseline value is expected to be zero. Number of institutional WaSH facilities constructed Institutional WaSH Facilities include water supply system, latrine and hand washing /rehabilitated in schools and health facilities under the facilities at health and schools project Number of water utilities that the project is supporting Total number of utilities providing water supply with which the Bank is working under the project. Additional volume of water produced from improved Additional water produced due to construction or rehabilitation of water supply source under the project ( in participating towns) schemes. % of participating towns that have established water The percentage of towns that have established water boards and have business plan boards and have business plans compared to the total number of towns benefiting from the project. Number of public and communal latrine Appropriate toilets with urinals and hand washing facilities constructed/rehabilitated at constructed/rehabilitated under the project market and public places and for group of households in LIAs. Targets are based on average beneficiary per latrine as per the design. Number of trained PMU staff at WaSH sector Ministries The number of project staffs working at federal, regional, zonal and woreda levels and their respective regions and program woredas trained to improve their capacity to implement the project. The training includes initial and periodic refresher and on the job trainings Number of trained WWT, WaSHCO/ Water Board Number of members of woreda WaSH teams, WaSHCOs, town water utilities, and members town water boards, caretakers and operators trained to improve their capacity to plan, implement and monitor their WaSH facilities 31 ANNEX 2: DETAILED PROJECT DESCRIPTION Ethiopia: Water Supply, Sanitation and Hygiene Project (WaSHP) 1. The Water Supply, Sanitation and Hygiene Project (WaSHP) will contribute to meeting the One WaSH National Program (OWNP) and GTP targets of 100 percent access water supply and 84 percent improvement in household latrines by 2015 for the targeted project population. The project will finance the construction of about 6,300 rural water supply schemes, and rehabilitation and expansion of water supply systems for about 70 towns. In addition the project will finance the improvement of water supply for health posts and health centers, and schools. The program will finance sanitation and hygiene promotion to improve household latrine usage, and sanitation marketing to stimulate demand among households to improve or upgrade basic latrines to improved latrines. The project will also finance construction and rehabilitation of school and health posts and health latrine facilities, as well as sanitation and hygiene promotion at schools, including provisions to facilitate the availability of menstrual hygiene. In the case of urban sanitation, the project will finance the improvement of sludge waste management and construction of public and communal latrines and sanitation, and hygiene promotion. Details on each sub-component are described below. 2. Component 1. Rural Water Supply, Sanitation and Hygiene (R-WaSH) (US$121 million equivalent, IDA financing). Funding is to be provided to: (i) construct 6,300 community water supply schemes and institutional water facilities; (ii) promote improved hygiene and sanitation practices in beneficiary communities and improve institutional sanitation facilities; (iii) strengthen and sustain capacity of beneficiary woredas to effectively plan, implement and manage their R-WaSH facilities; (iv) support the management of sustainable water supply system and sanitation facilities through the establishment of sustainable spare parts supply chains, procurement of O&M equipment and tools, local private sector capacity building to support water supply service delivery, e.g., provision of O&M services and strengthening the O&M units in the regional water bureau, zonal and woreda water office to provide adequate back-stopping support; and (v) support the establishment of O&M training curricula under the TVETs in each region, and equipping them to train operators and woreda water staff in sustainable O&M. 3. Of the total R-WaSH budget, 25 percent is allocated for sanitation and hygiene. The budget will be used to contribute to the overall achievement of OWNP targets. The program will also support federal- and regional-level sanitation and hygiene activities in woredas benefitting from IDA-financed WSS investments. The budget is allocated for software activities (about 36 percent) and hardware support (64 percent), the latter limited to improving institutional sanitation facilities at schools and health posts. This will be complemented by the promotion of sanitation marketing to stimulate demand among households to improve or upgrade the basic latrine. 4. Project interventions for household outreach to support behavior change, good hygienic practices, and to promote ODF include: promoting CLTSH, the eight steps in the Sanitation Protocol, consensus-building using participatory methods, capacity building of CLTSH facilitators in woredas and at primary health care units, use of HEWs and the HDA. 5. Component 2. Urban Water Supply, Sanitation and Hygiene (US$101.8 million equivalent, IDA financing): Funding is to be provided to: (i) improve the water production and 32 distribution system in 70 towns (50 small and 20 medium/large); (ii) support the preparation of urban sanitation strategies and implementation of priority sanitation investments in beneficiary towns; and (iii) strengthen the capacity of participating water boards/committees and operators to effectively manage their water supply and sanitation facilities. Works in 20 medium towns (population greater than 20,000) with existing water supply and sanitation systems that need to be expanded or improved will be financed consistent with the Government’s policy on cost recovery for urban water supply and sanitation. WRDF will be the implementing agency for these subcomponents, responsible for appraisal of proposed projects and monitoring and evaluation. 6. The project will continue supporting rehabilitation and expansion of town water supply services, based on need and coverage level and according to regional priorities. The unit cost of investment is based on per capita cost, which varies with population size (from US$45.75 to US$90, per OWNP, for cities and small towns, respectively), availability of a water source, and the complexity of the scheme. The mode of financing will vary based on the financial viability of the towns. Eligibility of participating towns for either partial or full grant assistance will be determined based on detailed criteria to be developed considering the financial and institutional viability of towns during implementation. 7. The small town capacity building interventions will take two forms. This includes activities to strengthen water board and utility staff capacities, such as preparing business plans, supporting procurement of O&M equipment and tools, and logistics support in procuring motorcycle or vehicles, depending on the size of the town. In addition, program interventions will support the recruitment of consultants to support town-level planning, building the capacity of boards and the utilities, design and study and construction supervisions. 8. Part of the funding from the Project Management budget will enable utilities in medium and large towns to operate more like a business entity. Funding through the towns will help utilities improve their operational efficiency, reducing unaccounted for water, improving billing systems and customer relations and service levels, and supporting utility benchmarking, implementation of proper tariffs, and organizational development. This will be managed by the water resource development fund and MoWIE. 9. In order to address the water supply and sanitation service delivery gap resulting from rapid urbanization, this component will also include activities to support the preparation of follow up interventions in urban areas that include sub sector technical, institutional and financial assessments, and feasibility studies for selected urban areas. It will also assess the potential for public private partnership arrangements. 10. Urban Sanitation and Hygiene: Of the US$101.8 million, US$6.7 million is allocated for sanitation. Funds allocated to urban sanitation will support activities in concert with the water supply system, including: (i) preparation of a National Urban Sanitation Strategy, prioritizing urban sanitation studies and investment in beneficiary towns; (ii) promotion of sanitation and hygiene through urban health extension programs; (iii) construction of communal toilets to improve sanitation facilities in low income areas, including access for people with disabilities or special-needs; (iv) construction of public latrines at market places, bus stops and business centers; and (v) improving towns’ de-sludge services by constructing sludge drying beds, and procuring vacuum trucks or other desludging equipment where feasible. 33 11. Project Management Monitoring and Evaluation and Capacity building: (US$11 million equivalent, IDA financing) Funds will be provided to the implementing agencies at all levels to plan, manage and monitor program activities through training, post construction management support, equipment, tools and support to monitoring and reporting. The program will finance staffing and resources as necessary to effectively implement the project at the federal and regional levels. This includes support to MoFED, MoH, MoE and MoWIE to build staff capacity at regional health, education and water bureaus, BoFED and TVET, and regionally-based consultants to: support program implementation, refine policies and program implementation arrangements, monitor and evaluate the program, equip water quality testing and training centers, and improve information availability and flow. Program management cost allocation for the different implementing agencies is show in the following Table. Table A2-1 Detailed Cost Estimates by Component and Sub Components Allocated Budget in US$ No.  Component/Major Cost Items million Total IDA I Rural Water Supply, Sanitation and Hygiene 121.0 110.00 1  Construction of 6,300 Rural WS schemes23 67.9 61.73 2  CFT support to Communities 4.3 3.91 3  Woreda Operation Support 1.3 1.18 4  Woreda equipment 1.3 1.18 7% of Rural Budget (regional level consultants/WWC, regional O&M 5  9.0 8.18 support and supply chain, TVETC support ) 6  School WaSH, new and rehabilitation 19.9 18.09 7  Woreda Grants to sanitation and hygiene 11.2 10.18 8  Health facility water supply, new and rehabilitation 6.1 5.55 II Urban Water Supply, Sanitation and Hygiene 101.8 85.00 2.1 Small Town Water Supply and Sanitation (50 towns ) 40.3 36.64 Construction of water supply system (Civil works, Source development 1 33.7 30.64 and Goods) 2 Feasibility Study and Design 0.9 0.82 3 Immediate Services improvements 2.2 2.00 4 Urban Sanitation 2.2 2.00 5 Operational Support 0.9 0.82 6 Capacity Building 0.4 0.36 2.2 Medium Towns ( 20) 56.5 43.36 Construction of water supplies (Civil works, Source development and 1 43.5 33.45 Goods) 2 Study and Design 1.7 1.27 3 Immediate Services improvements 2.8 2.18 4 Urban Sanitation 4.5 3.45 5 Operational Support 1.2 0.91 6 Capacity Building 2.8 2.18 2.3 Preparation for follow on intervention in urban areas 5.0 5.00 III Project Management Monitoring and Evaluation 11.0 10.00 1 MoH and Regional Health Bureaus 2.2 2.00 2 MoE and Regional Education Bureau 1.3 1.18 3 MoFED and BoFED 0.5 0.45 23 Other technologies such as rain water harvesting and hafier dam that are suitable to pastoral regions (Afar & Somali) will be included during detail region specific planning. 34 Allocated Budget in US$ No.  Component/Major Cost Items million Total IDA 4 MoWIE and Regional Water Bureau 3.1 2.82 5 National level technical assistance 2.1 1.91 6 Capacity building and program support for WRDF 0.4 0.36 7 Support to the National and Regional WaSH Coordination Office 0.7 0.64 8 Support to TVETC 0.7 0.64 Total Cost for WaSHP 233.8 205.0 Technology Options 12. OWNP provides about eleven technology options for rural water supply construction and rehabilitation. The technology option is largely influenced by different factors including hydrogeological formation and availability of source, affordability of investment as well as O&M costs and population density. The mix ratio of the technology varies from region to region. Under WaSHP, the scheme mix ratio is slightly different from OWNP for the following reasons: (i) OWNP consider a high number of complex technologies and big schemes, mainly deep borehole with rural piped systems (RPS) which is more costly and presents big O&M challenges. WaSHP focuses on smaller and less complex schemes; (ii) WaSHP takes into account the mix ratio from the recently-closed WSSP scheme; and (iii) some of the OWNP schemes, such as self- supply and household rope pumps, are not considered under WaSHP, as the focus is on the community WaSH supplying individuals. The following technical options were considered:  Fully-lined hand-dug wells with a raised collar around the well opening, fitted with a rope pump and designed to serve the community for a minimum of 5 years;  Fully-lined hand-dug well with a raised platform, fitted with hand pump designed and to serve the community for minimum of 5 years;  Drilled shallow well fitted with hand pump, designed to serve the community for a minimum of 10 years;  Capped springs, designed to serve the community for a minimum of 10 years;  Capped spring with water distributed in a public fountain, designed for a minimum of 10 years; and  Motorized deep borehole with water distributed in a public fountain, designed for a minimum of 10 years. 13. Beneficiary number is calculated based on the number of people that could be serviced from each type of technology. The following table shows the number of users served per type of scheme, based on two different data sources (GTP and adjusted figures based on actual data obtained from regions). WaSHP refers to the adjusted beneficiary numbers. 35 Table A 2-2. Service Norms for Rural Water Supplies Population Adjusted based on Type Scheme served as per actual information the GTP/UAP from regions Lined hand-dug well with raised collar, with rope pump 75 46 Lined hand-dug well with raised platform, with hand Point source 270 162 pump Capped spring 350 211 Shallow well with hand pump 500 301 Distribution Capped spring with distribution 4,000 2,406 Systems Deep borehole/motorized pump with distribution 3,500 2, 105 Project Cost: Rural Water Supply 14. The number of schemes that will be constructed by WaSHP financing is determined using the OWNP unit cost. OWNP determined the per capita cost of the different schemes, based on the complexity of the technology and also the unit cost per scheme type. The unit cost is calculated by considering the historical unit cost of different past projects, including government and donor-financed. A price escalation of 2.5 percent price was taken into account in establishing 2013 unit costs. Table A2-3 Rural Water Supply Scheme Unit Cost Estimate used in WaSHP No. Scheme type Historical unit Average per capita WaSHP cost (US$) historical unit cost (US$) planned # of schemes 1 Dug well with rope pump 1,135 15 1,197 2 Dug well with hand pump 3,601 13 2,331 3 Spring on spot 6,000 17 1,260 4 Rural piped systems from spring source 121,880 30 63 5 Shallow well with hand pump 10,000 20 1,260 6 Shallow well with submersible pump 35,000 23 - 7 Rural piped systems from borehole source 100,000 29 189 Total Schemes 6,300 Institutional WaSH (School and Health Post) Sanitation facilities 15. Unit rates for new construction and rehabilitation of institutional sanitation facilities is also taken from OWNP. Latrines will be constructed as per the design and construction manual developed by the Ministries of Health, Education, and Water and Energy in collaboration with UNICEF. Table A2-4. Unit Cost Estimate of Institutional Sanitation Facilities I School WaSH Unit cost US$ 1 Construction of 4 seat latrines, spate block for boys and girls at primary schools with 14,250 urinals, hand washing facilities, and shower. 2 Rehabilitation of existing primary school latrines with hand washing facilities. Includes 7500 additional separate block for girls and boys with disabilities. 3 Construction of a new school water supply system 6,000 4 Rehabilitation of school water supply system 900 36 5 Construct model HHs for behavioral change sanitation demonstrations (HHs latrine facility, 500 hand washing and safe water storage and management system) within the school compound. II Health Facilities WaSH 1 Construction of sanitary facilities at primary health care units (latrine facilities with hand 17,000 washing, incinerators, placenta pits, shower rooms, waste disposal pits and urinals); as needed 2 Rehabilitation of sanitary facilities at primary health care units 1,000 3 Construct model HHs for behavioral change sanitation demonstrations (HHs latrine facility, 250 hand washing and HHs safe water storage and management system) within the Primary Health Care Units compound. 4 Construction of water schemes for health facilities (line expansion) 7,500 5 Rehabilitation of health facilities water scheme 900 Rural Sanitation and Hygiene 16. The WaSH sanitation and hygiene program will help to achieve the OWNP/GTE targets of access to sanitation for 100 percent of the project population and 84 percent coverage for improved hygiene and sanitation. The project will help to realize these targets by supporting the main activities defined under the three pillars of the National Sanitation Strategy. The budgeted proportional allocations for WSS and hygiene are based on proportions estimated under OWNP. The three pillars for hygiene and sanitation, includes:- Pillar 1: Creating an enabling environment Pillar 2: Building demand for sanitation Pillar 3: Facilitating the supply of desirable, appropriate and affordable hardware 17. The first two pillars focus on improving latrine facilities of households while the third pillar mainly focus on improving institutional WaSH that includes construction of water supply and sanitation facilities for health centers/ posts and educational facilities. 18. Program interventions include: promoting CLTSH, the eight steps in the Sanitation Protocol, consensus-building using participatory methods, capacity building (CLTSH facilitators in woredas and at primary health care units), use of HEWs and the HDA for household outreach to support behavior change and good hygienic practices, and promote ODF. Monitoring, reporting verification and follow-up, as well as using standard guidelines, manuals and formats will be additional support to effective implementation. Activities and steps for improving sanitation and hygiene will be implemented as per the Sanitation and hygiene protocol. Table5 give the detail steps and activities 37 Table A 2-5. Sanitation and hygiene promotional activities Step/Purpose Outcome 1. Pre-planning and organizing To reach consensus at woreda ‐ Hygiene and sanitation issues are important level with political leaders and ‐ All agree to resolve the problems identified (joint action plan) stakeholders ‐ Use WaSH coordination mechanism (e.g. WWT) to monitor plans to make behavioral change (BC) a reality in the woredas 2. Capacity building To identify and train WaSH actors ‐ HEWs promote latrine options, BC approaches and tools. in the woreda ‐ Trained WaSH actors support HEWs in constructing latrines, BC approaches, familiarize with BC tools 3. Conduct rapid WaSH baseline assessment To provide information on the – Evidence based advocacy actual WaSH situation – Prepare a joint action plan – Performance monitoring 4. Organize Multi-stakeholders meeting To create common ground for a – Involvement of woreda and kebele political leaders, Community Based joint action plan Organizations, Faith Based Organizations , and NGOs, private sector and associations, Health Extension Workers and Parents Teachers Association 5. Planning and budgeting Make plans to address/solve – Construction of model latrines and hand washing facilities using locally problems and focus on total available materials behavioral change – Making available DSA, fuel and transport (triggering, follow up/support 6. Kebele and Gott ignition and action To identify and use kebele level – Identify kebele hygiene and sanitation problems bodies such as development – Identify doable actions to improve the hygiene and sanitation situation committees/ Health Development – Community/ Households engaged, e.g., through community Army conversation 7. Construct model latrines and hand washing facilities Ensure availability of affordable – Locally available construction materials and skilled workers sanitation technology options – Trained local artisans in latrine construction – Latrines constructed from locally available materials 8. Institutional WaSH (schools, health units, others) Use students and teachers as – Health clubs strengthened or newly established change agents – School Health Science Program implementation guideline – Trained school Health Club members/leaders on total behavioral change – Mechanism to support household and community hygiene promotion 9. Communication Disseminate and multiply the – Competition among HHs/gotts/kebeles/woredas/schools(exposure visits) messages – Reward for good achievement – Mass media (multi-media approaches) 10. Supervise, monitor and report To use WSSP indicators to – Regular support and supervision monitor, supervise and report – Participatory progress monitoring 11. Evaluate and value To share experience with the – Competition between gotts to increase community commitment to total community behavioral change 38 Urban Water Supply and Sanitation Unit Cost 19. The per capita cost for providing water supply and sanitation to the urban community is also adapted from OWNP that ranges US$45 to US$90 for small and medium towns (small towns are fewer than 20,000 people; medium towns are 20,000-100,000, respectively). The cost of urban water supply is further subdivided into the different activities (study and design, rehabilitation and expansion, immediate capacity building, and sanitation). Urban sanitation activities include desludging equipment and facilities, construction of public and communal latrines and promotion of sanitation and hygiene improvement. The cost calculation also considers that a certain percent of the population could be served from the existing system (50 percent for medium-sized towns; 40 percent for small towns). 20. Average unit cost for a sludge drying bed is used as US$1,545 and US$9,098 for small and medium-sized towns, respectively. Truck mounted dislodging equipment considered includes those with capacity of 3m3 and 5m3. It is assumed that, in the case of medium towns, one vacuum truck can serve two or three neighboring towns. For large towns, one truck can serve mainly low income areas and public institution sanitation facilities, assuming that there will be private sector operators in the larger towns. Table A2-6 Per capita cost of WSS provision for different town category Per Capita Cost Factor for use of existing Population (US$) system <1000 90 0.6 5000 to 15,000 80 0.6 15,000 to 20,000 75 0.7 20,000 to 30,000 70 0.7 30,000 to 50,000 65 0.7 50,000 t0 100,000 60 0.7 100,000 to 200,000 55 0.8 200,000 to 500,000 50 0.8 500,000 to 1,000,000 49 0.85 >1,000,000 45.79 0.9 Urban Sanitation 21. The following will be some of the activities planned to be included under WaSHP: (i) A National Urban Sanitation Study, as well as supporting studies relating to urban sanitation in low income areas; (ii) Improving sanitation facilities in low income areas (including for people with disabilities and with special needs) and schools and health institutions, through construction of communal toilets; (iii) Construction of public latrines at market places, bus stops and business centers; (iv) Improve towns’ desludging services by constructing sludge drying beds; (v) Procuring of desludging equipment and vacuum trucks where feasible or, in particular, for medium-sized towns. 39 Table A2-7 Urban Sanitation unit cost No. Description Unit cost in US$ Small towns Large towns 1 Public Toilets 1.1 Construction of new latrines and hand 18,940 18940 washing facilities for public latrines 1.2 Rehabilitation of existing latrines and hand 1,000 1000 washing facilities for public latrines 1.3 Construction of new latrines and hand 6,180 6180 washing facilities for communal latrines 1.4 Rehabilitation of existing latrines and hand 1,000 1000 washing facilities for communal latrine 2 Desludging equipment and facilities 2.1 Sludge drying beds 1,545 9098 2.2 Vacuum trucks 2.3 3m3 capacity vacuum truck 20,384 2.4 5m3 capacity vacuum truck 46,590 Urban Water Supply Capacity Building 22. Under WSSP, capacity building for towns mainly focused on building the management capacity of the board and the utilities and less on improving operational efficiency of the utilities. Although much is achieved in improving management capacity of the boards and utilities by providing training and working manuals, additional capacity building intervention is needed to improve the operational efficiency of utilities. 23. The town capacity building intervention will take two forms: (i) the capacity building package which goes with the physical implementation similar to activities carried out under WSSP for new towns. Funding will be provided to increase the capacity of participating water boards and water utilities’ staff to effectively manage their water supply and sanitation facilities. This will include activities such as strengthening the management capacity of board and utilities and preparation of business plan. (ii) Separate capacity building packages for medium-sized towns will mainly focus on improving operational efficiency of the utility, enabling it to operate as a business entity. Thus funding will be provided to help utilities reduce unaccounted for water, improve their billing system, customer relations and service levels, implementation of proper tariff, and organizational development. This will follow towns that were supported under WSSP (focusing on medium towns and sub loan towns) in the first two years and scale up to the new medium intervention towns after program midterm review. In addition the package will also include strengthening the core process owner of O&M units in the regional bureaus to provide continuous technical support to all utilities. 24. Criteria to access this package will be developed at a later stage, but the major criteria should include: • Recruitment of the required technical staff for key positions • Willingness to implement and establish proper tariffs • A five-year operational plan to implement the business plan • Availability of a Signed Performance Agreement between the Board and Utilities • Readiness to carry out a year-end external audit • Readiness to implement the required reforms to operate as business entity. 40 25. To align with the OWNP approach, the contributions from rural communities, urban residents and government are also considered in determining the overall budget for planning. Community contributions are assumed to be 10 percent for both urban and rural communities. Rural communities will contribute 5 percent in cash and 5 percent in kind (labor, materials, etc.) The contribution of urban residents is also assumed to be 10 percent and will come from the utility’s own earnings. For medium/large utilities 20 percent will be considered where feasible. 26. A minimum woreda capacity building package is under consideration, including, but not necessarily limited to:  Training  Hand dug well equipment and tools (tripod, cylinder mold, chain block and others)  Motor cycle  Computer software and hardware  Office equipment and furniture  Communication and office supplies  Running cost and spare parts for /motorbikes  Travel allowances for woredas WaSH staff, including WWT members 27. The sustainability of water supply schemes largely depends on the operation and maintenance system in place, the availability of spare parts in close proximity to the community and proper community management of the facility. WSSP has made good progress in establishing proper community management but additional work is required to strengthen the O&M system and increase easy availability of spare parts. Currently the O&M support to the WaSHCO is being provided by woreda, zonal and regional water offices. But the support is not systematically established to provide the required support. Moreover, the woreda, zonal and regional water offices are mostly engaged in implementing new projects. Under the recently closed WSSP, capacity building activities at regional woreda, town and community levels were carried out. The capacity building intervention included training of woreda WaSH teams, WaSHCOs, town water utilities, and town water boards, caretakers and operators. In addition, the project provided a few maintenance and operation tools for WaSHCO and woreda. The Bank also supported a study on spare parts supply chain to help establish a sustainable supply at the community level. But the study recommendation is not implemented largely due to resource limitations. Regions have also piloted different models for ensuring sustainable spare part provision, mainly focused on small schemes. Two of these initiatives include the spare parts supply chain project supported by Japan International Cooperation Agency (JICA) in Southern Nations, Nationalities and Peoples Region (SNNPR), and the revolving fund mechanisms for provision of spare parts under Finland-supported Rural Water Supply and Sanitation Program (RWSSP). 28. Sustainable O&M of rural schemes continues to be a challenge. About 25 percent of the schemes are not functional and more support is required to ensure sustainable service provision for the community. Spare parts are not usually available at sub regional outlets; WaSHCOs have to travel to regional or national capitals for spare parts. MoWIE, supported by partners, is in the process of conducting a study and in order to develop National Guidelines for O&M Strategy. The study will look all aspects of O&M – technical, financial, Institutional, equipment and tools – required for effective and sustainable O&M. 41 ANNEX 3: INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENT Ethiopia: Water Supply Sanitation and Hygiene Project (WaSHP) I. Institutional Arrangements 1. The responsibility for the development and provision of water supply and sanitation services are tasks shared among several ministries, including Education, Health, Water, Irrigation and Energy, and Finance and Economic Development, and their respective bureaus and offices at regional and woreda levels. These ministries have signed an MOU, which describes the specific roles and responsibilities of the four ministries in implementing the WaSH Program. In addition, the MoU defines major areas of cooperation among the signatory parties’ joint planning, resource mobilization, creation of management and coordination structures, quality control, and monitoring. 2. WaSHP implementation arrangements are based on the MOU signed between the four participating Ministries, and they are in line with the Government’s policy objectives of decentralizing to the lowest possible level, involving all stakeholders in the process, integrating sanitation with improvements to water supply, and recognizing water as an economic as well as a social good. 3. A Program Implementation Manual will be developed to provide detailed implementation steps and procedures to be followed. The PIM will outline the project institutional and implementation arrangements and the rules of engagement for planning, appraisal, contracting, and implementation. Standard operating procedures, forms, bidding documents for works, and terms of reference for consultants are also being developed to streamline implementation. These will be incorporated into the implementation manuals. 4. The highest governing body in the Program is the National WaSH Steering Committee (NWSC) whose members include Ministers and State Ministers from the Ministries of Water, Irrigation and Energy, Health, Education and Finance and Economic Development. The NWSC is chaired by the Minister of Water, Irrigation and Energy. 5. The technical arm of the NWSC is the National WaSH Technical Team (NWTT) consisting of Directors from the four participating ministries. A similar structure is prescribed at the regional level. The lowest level of WaSH governance is the woreda, where WaSH activities are implemented by the Woreda/Town WaSH Team led by the Woreda/Town Administrators. Its members are from the four WaSH sector offices (Water, Health, Education and Finance with additional members from the Women’s Affairs and Agriculture offices). Development partners are presently represented by the Development Assistance Group (DAG) – the Water Technical Working Group. 6. A National WaSH Coordination Office (NWCO) will be responsible for coordinating, planning and oversight of project implementation at federal level. The NWCO will report to a National Steering Committee chaired by the Minister of Water, Irrigation and Energy and supported by a National WaSH Technical Team consisting of representatives from participating ministries and partners. 7. Project implementation in the sector ministries will be the responsibility of WaSH Project Management Units (PMUs) in the ministries of Water, Irrigation and Energy, Health, Education and Finance and Economic Development. 42 8. At regional, zonal and city levels, project planning and implementation will be coordinated by a WaSH Coordination Office which will report to a Regional WaSH Steering Committee and be supported by a Technical Team. Implementation will be managed by WaSH PMUs in the bureaus of water resources, health, education and finance and economic development. 9. At the woreda level, project planning and implementation will be coordinated by a dedicated WaSH Team consisting of members from the water, health, education and finance desks. The Woreda WaSH team will report to a Woreda WaSH Steering Committee appointed by the Woreda Cabinet. At the kebele level, WaSH plans will be approved by the Kebele Chairman and Council, and Health Extension Workers will be deployed to support communities in the construction of latrines and to promote safe hygiene practices. 10. At the community level, WaSH committees (WaSHCOs) consisting of elected community members will be formed to undertake planning, operation and maintenance and in some cases construction of improved water supply and sanitation facilities. 11. Oversight and guidance of the program in towns will be conducted by the town WaSH Steering Committee. In case of towns/cities having local government status, the Town/City Cabinet will be the town/city WaSH Steering Committee. In case of towns not having local government status, the Woreda Cabinet will be the WaSH Steering Committee for the whole woreda including the towns in the woreda. The Water Resources Development Fund (WRDF) will be the implementing agency for these subcomponents, responsible for appraisal of proposed projects and monitoring and evaluation. 12. The following diagram and tables are adopted from the WIF document. They map the arrangement of WaSH structures at each level (from federal to town/city) along the functions of governance and guidance, oversight and management, program implementation, and program coordination. They also provide specific duties and responsibilities of WaSH structures at federal, regional, zonal and woreda levels. Through a staffing assessment it has been confirmed that currently core project staff are in place with some gaps. It has been agreed that the project will recruit /assign appropriate staff to fill the gap as per the revised staffing plan three months after project effectiveness. 43 Table A3-1 Arrangement and Functions for OWNP Implementation Governance Oversight & Program Program Level & Guidance Management Implementation Coordination Federal National National Federal Sectors’ WaSH National WaSH WaSH Project Management WaSH Steering Technical Units (WPMUs) Coordination Committee Team Office W MoFE E H Regional Regional Regional Regional Sectors’ Regional WaSH WaSH WaSH Project WaSH Steering Technical Management Units Coordination Committee Team (WPMUs) Office BoFE H W E Special Zonal WaSH Management Zonal WaSH Project Zonal WaSH Zones Team Management Units – Coordination (or other (Water, Health, Office zones where Education, and ZoFED) applicable) ZoFE E H W Woreda Woreda WaSH Steering Woreda WaSH Team Committee WoFE (Woreda Cabinet) D H W E Other d k Town/City Town/City WaSH Steering Town/City WaSH Technical Team Committee (Town Cabinet) Municipality Health Desk/Education Desk Town Water Board Town Water Utility 44 Table A3- 2 Duties and Responsibilities of WaSH Structures at Federal Level No. WaSH Structures Duties and Responsibilities 1 National WaSH Steering Committee  Reviews and endorses the National WaSH Strategic Plan and consolidated Annual WaSH Plans  Oversees the proper M&E functioning of the WaSH Program  Ensures the establishment and functioning of WaSH structures at all levels  Ensures that the National WaSH Implementation Framework is updated every three years  Ensures the annual Multi-Stakeholder Forum is conducted and follows up on the implementation of undertakings 2 National WaSH Technical  Facilitates inter-ministerial communication and cooperation Team  Reviews and submits Strategic Plan and Annual Plans to the NWSC for approval  Implements strategic decisions and direction of the NWSC  Promotes and advocates regions to have their own WaSH MoU based on the principles laid in the federal MoU  Regularly monitors program implementation, provides guidance and reports progress and results to NWSC  Designs programs for experience-sharing within and outside the country  Designs and manages the MSF and other review meetings and follows up on the implementation of undertakings  Organizes JTR and MSF in collaboration with development partners 3 WaSH Program Management There will be three WPMUs, one in each sector ministry, with the following Units responsibilities:  Monitors implementation of WaSH programs and projects  Facilitates the implementation of WaSH projects  Reviews and ascertains that procurement plans are within the annual WaSH plan  Provides Project Management support to WaSH structures and sector implementers at all level  Ensures that program strategies, activities and results are monitored, evaluated and reported within the WaSH framework and systems  Assists the regions to identify their program gaps and management deficits and provide them with the technical assistance and/or capacity development they require  Builds linkages with and among regions – sharing information, progress reports and best practices  Demonstrates and fosters the integration and harmonization of the WaSH Program 4 National WaSH Coordination Office  Assists the regions in preparing and implementing WaSH MoUs appropriate to their respective contexts  Supports the establishment of Regional WaSH Coordination Offices in all regional states and ensures their proper functioning  Provides continuous support to the Regional WaSH Sector Bureaus and Regional WaSH Coordination Offices in planning and implementing the WaSH Program  Prepares and recommends to NWTT consolidated Strategic and Annual Work Plans  Designs and implements a National Capacity Building Program, 45 No. WaSH Structures Duties and Responsibilities including preparation of manuals, guidelines and generic training materials  Makes recommendations to the NWTT on strategies and implementation arrangements based on the analysis of M&E reports and other data  Organizes JTR, MSF and other meetings in collaboration with development partners  Ensures regions have consolidated WaSH plans  Convene meetings of RWCO staff and WaSH focal persons  Facilitates experience-sharing within and outside the country  Maintains national WaSH management systems and records  Promotes and facilitates national networks among WaSH actors Table A3- 3 Duties and Responsibilities of WaSH Structures at Regional Level No. WaSH Structures Duties and Responsibilities 1 Regional WASH Steering Committee  Reviews and endorses the regional WaSH Strategic Plan and consolidated Annual WaSH Plans  Oversees the proper M&E functioning of the WaSH Program at regional level  Ensures the establishment and functioning of WaSH structures in the region 2 Regional WASH Technical  Facilitates inter-sectoral communication and cooperation Team  Reviews and submits Strategic Plan and Annual Plans to the RWSC for approval  Regularly monitors program implementation and provides guidance  Facilitate the preparation of JTR and MSF in collaboration with development partners 3 Regional WASH Project  Implement WaSH program at regional level Management Units  Monitors implementation of WaSH projects of woredas and towns  Provides support to town and woreda WaSH implementers  Ensures that program strategies, activities and results are monitored, evaluated and reported within the WaSH framework and systems  Assists woredas identify their program gaps and management deficits and provides them with the technical assistance and/or capacity development they require  Builds linkages with and among woredas – sharing information, progress reports and best practices  Demonstrates and fosters the integration and harmonization of the WaSH Program 4 Regional WASH Coordination  Assists woredas in implementing WaSH MoUs appropriate to their Office respective contexts  Supports the establishment of WWT in all woredas and ensures their proper functioning  Provides continuous support to the WWT in planning and implementing the WaSH Program  Prepares and recommends to RWTT consolidated Strategic and Annual Work Plans  Designs and implements a Regional Capacity Building Program, including preparation of manuals, guidelines and generic training 46 No. WaSH Structures Duties and Responsibilities materials  Ensures woredas have consolidated WaSH plans  Facilitates experience-sharing within and outside the region  Maintains regional WaSH management systems and records  Promotes and facilitated regional networks among WaSH actors 5 Woreda WASH Team WWT has the following generic responsibilities:  Prepares consolidated Woreda WaSH plans (strategic and annual)  Review and monitor WaSH program implementation at woreda level  Manages annual WaSH Inventory and M&E system and maintains woreda database/information system and ensures its annual update  Reviews and prioritizes WaSH plans proposed and submit to WoFED for review and recommendation for approval,  Contracts and supervises training and technical services if and as required, e.g. Community Facilitators, Woreda Support Groups, etc.  Supporting WaSHCOs to become legal entities  Actively supports the emergence, training, equipping and engagement of artisans and other service providers in the private sector, and the establishment of a viable supply chain  Ensures sustainability of WaSH services in collaboration with appropriate sector offices. II Financial Management and Disbursements Executive Summary: 13. A financial management (FM) assessment was conducted in accordance with the Financial Management Manual issued by the Financial Management Sector Board on March 2010. The objective of the assessment was to determine whether the participating institutions have adequate financial management systems and related capacity in place which satisfies the Bank’s Operation Policy/ Bank Procedure (OP/BP) 10.00. The policies and procedures requires that the Borrower maintain, or cause to be maintained, for project implementation, financial management arrangements that are acceptable to the Bank and that, as part of the overall arrangements in place for implementing the project, provide reasonable assurance that the proceeds of the Investment Project Financing are used for the purposes for which they are granted. Financial management arrangements are comprised of planning, budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements of the Borrower and entity or entities responsible for project implementation. The financial management assessment considers the degree to which: (i) the budgeted expenditures are realistic, prepared with due regard to relevant policies, and executed in an orderly and predictable manner; (ii) reasonable records are maintained and financial reports produced and disseminated for decision-making, management, and reporting purposes; (iii) adequate funds are available to finance the project; (iv) there are reasonable controls over project funds; and (v) independent and competent audit arrangements are in place. The assessment also included the identification of key perceived financial management risks that may affect program implementation and proceeded to develop mitigation measures against such risks. 47 14. The Bank has conducted the assessment building on the lessons learned from the current project, WaSH. In addition, assessments were conducted across all levels, from federal to woreda, selected on a sample basis. 15. The FM residual risk for the project after implementation of mitigating measures is rated as Substantial. The mitigating measures proposed in the action plan will help to reduce the risk of the project once implemented. The main strength of the project is that it is a repeat project with knowledge of the Bank operations, including FM requirements. The main weaknesses for the FM arrangements include delay in funds flow and reporting due to the existence of various implementing agencies. In addition, staff turnover may continue to affect the project. The apparent deficiency in internal audit function is also another challenge. The lessons learned from WSSP notes difficulties in realizing timely budget preparation and notification, and budget monitoring issues, staffing turnover, capacity and accountability issues, internal control and internal audit challenges, and the size of advances and settlement thereof. Action plans that encompass the mitigation measures for the risks and weaknesses are prepared and agreed. 16. The project financial management arrangements will be coordinated and managed by MoFED at the federal level, BoFED in the regions and WoFED in the woredas. The FM arrangements largely follow the existing arrangement with measures to address lessons learned and challenges noted in the current situation. The project, under WSSP, currently maintains the FM Manual, which largely follows government systems. It is expected that the project will revise the FM Manual within three months of effectiveness, to take on board of the new design features and issues. Budget procedures are laid out which are consistent with government budget procedures. Efforts to strengthen budget dissemination aspect as well as budget control/monitoring will be intensified. Internal control strengthening mechanisms will be accorded attention. The Internal Audit Units at all levels are expected to review project expenditures which are subject to internal audit testing. Accounting and audit staffing capacities and numbers will be reviewed and increased as appropriate. Capacity building measures need to be planned and conducted. 17. The project will continue to prepare and submit quarterly unaudited Interim Financial Reports (IFRs) as required. The contents and formats of the IFRs were agreed during negotiations. Disbursements will be made based on IFRs and six month cash forecasts. For this purpose, the project will open a segregated US$ Designated Account for the project as well as other local currency accounts as appropriate. In addition to receiving advances through the Designated Account, the project may use other disbursement methods such as reimbursements, direct payment and special commitment. 18. The project, in coordination with Office of the Federal Auditor General (OFAG), is required to select the project auditor within three months of effectiveness and to conduct an annual audit. The project will then submit project audited financial statements to IDA in a form and content satisfactory to the Bank. The audit Terms of Reference (TORs) were agreed during negotiations. 19. FM-related covenants include: maintaining satisfactory financial management systems throughout the life of the project; submission of project IFRs for each fiscal quarter within 60 days after the end of the quarter and submission of annual audited financial statements and audit reporting including the Management Letter, within six months of the end of each fiscal year. 48 20. Based on the conclusion of the Bank’s FM assessment, the project FM arrangements meet the IDA’s requirements as per OP/BP 10. It is adequate to provide, with reasonable assurance, accurate and timely information on the status of the project required by IDA. However, the following action plans were agreed to address some of the weaknesses observed. Country Issues 21. The GoE has been implementing a comprehensive public financial management reform with support from development partners, including the Bank for the last twelve years through the Expenditure Management and Control sub-program (EMCP) of the government’s civil service reform program (CSRP). This was being supported by the IDA financed Public Sector Capacity building Support Program (PSCAP), Protection of Basic Services (PBS) and other donors financing as well as Government own financing. These programs have focused on strengthening the basics of PFM systems: budget preparation, revenue administration, budget execution, internal controls, cash management, accounting, reporting, and auditing. With the basics increasingly in place, the Government is beginning to increase its focus on strengthening the linkages between public policy objectives and expenditure. In this context, GoE has embarked on a programming/performance budgeting framework within MoFED. 22. The 2010 Ethiopia Public Expenditure and Financial Accountability (PEFA) PFM performance measurement framework assessment completed in September 2010 covered the federal government in the form of Ministries and Agencies as well as five regions. The study notes that Ethiopia has made significant progress in strengthening PFM at both federal and regional levels. Improvements have been noted in budgeting and accounting reform. The predictability in the composition of expenditure improved sharply, the variance in excess of the aggregate deviation falling to 5.7 percent. The budget is reasonably realistic and is reasonably implemented as intended, and performance in this regard has improved marginally since the period covered by the first PEFA assessment. 23. Comprehensiveness and transparency improved during the period covered by the 2010 PEFA assessment. Other notable areas of improvement are: increased in the amount of budgetary documentation submitted to House of Peoples’ Representatives, strengthened reporting on donor projects and programs, improved transparency in inter-governmental fiscal relations, through greater timeliness in the provision of information to regional governments on the size of the budget subsidies that they will receive, and improved access by the public to key fiscal information through audit reports. An issue remaining to be addressed is for the Government to make available to the public information on the incomes and expenditures of extra-budgetary operations. 24. Weaknesses were noted in internal audit which necessitate increased focus on systems audit, and increasing management response to audit findings. Further strengthening of the internal audit function is a key challenge. The full roll-out of IBEX has helped to strengthen the quality of in-year budget execution reports by including information on revenue and expenditures, financial assets and liabilities, but excluding information on donor-financed projects and programs. A limiting factor continued to be the use of non-International Public Sector Accounting Standards (IPSAS) compliant accounting standards; compliance with IPSAS would require disclosure of information on donor-financed projects and programs. 49 25. Overall performance of external audit has improved due to increased coverage and a lessening of the time needed to audit annual financial statements. Audits conducted by Office of the Federal Auditor General (OFAG) generally adhere to International Organization for Supreme Audit Institutions (INTOSAI) auditing standards and focus on significant issues. The PFM study also notes that regional performance of PFM reform varies from region to region. Risk Assessment and Mitigation 26. The FM risk for the project is rated as substantial and expected to reduce once the mitigating measures are implemented. The main strength of the project is that it is a follow up project with knowledge of the Bank operations including FM requirements. The PFM reforms are underway, and the country’s discipline in budget preparation and compliance with the existing governmental regulations are also overall issues that contribute to the strength. Some staff has already undertaken training in Bank policies and procedures. In addition, this is a Channel One project that benefits from oversight from MoFED. The main weaknesses for the FM arrangements continue to be turnover and shortage of qualified accountants and auditors (mainly at woredas), limited focus and weak or largely ineffective internal audit functions. The existence of a number of implementing entities poses a number of challenges in delay of fund flows and in accountability reporting (financial reporting) including the submission of audit reports. There are also weaknesses in aspects of budget monitoring. Weaknesses in the internal control system include follow-up on audit recommendations. The lessons learned from WSSP notes challenges in timely budget preparation/notification and weak budget monitoring issues, staffing turnover, capacity and accountability issues, as well as internal control and internal audit challenges, size of advances and settlement thereof. The detail table that outlines respective perceived financial management risks to the program, including mitigation measures, is documented in the FM assessment report. Action plans that encompass the mitigation measures for the risks and weaknesses are prepared, agreed and documented below: Table A3-4 Action Plan Action Date due by Responsible 1 Revise the FM Manual and translate and 3 months after MoFED disseminate to all levels effectiveness 2 Trainings 1. Initial training to be MoFED 1. On the FM Manual will be provided. given 2 months after 2. Ongoing FM trainings will be conducted - approval of the FM Budget analysis training, IFR preparation Manual by the Bank. training, etc. to be offered 2. Once a year, training will be given to implementing entities 3 Attention and efforts to improve budget discipline Ongoing MoFED and and budget monitoring implementing entities 4 Adopt a standalone IBEX accounting system. By 2007 EFY to be MoFED reviewed by mid term 5 Based on a staffing plan to be agreed, MoFED 3 months after MoFED shall recruit/ assign FM staffs effectiveness 50 Action Date due by Responsible 6 In response to internal control weaknesses: Within 3 months of MoFED MoFED reviews the systems in place to identify effectiveness gaps and prepare an action plan on how the gaps in the system will be covered going forward 7 Support to Regions and Woredas: On-going MoFED/BoFED MoFED, BoFED, CoPCUs should conduct regular field visits to support and monitor the performances of the BOFEDs and WoFEDs, respectively. 8 Internal Audit 1. On going MoFED and WB 1. Increased engagement of Internal Audits at 2. Within 3 months of all levels to identify control weaknesses effectiveness early. 3. On-going and as per 2. Hire/assign internal auditors at MoFED and deadlines of the BoFED to conduct internal audits; and interim audits conduct trainings to build capacities. 4. Regularly 3. In addition the internal auditors will conduct detail internal control assessment semiannually and submit a report within 60 days of the end of each semester. 4. World Bank will continue to track the performance of internal auditors as to whether the project was subject to internal audit reviews. . 9 IFR/Report issues 1. Within 2 months of MoFED 1. FM Manual will clarify reporting effectiveness requirements. 2. Within 60 days after 2. Continuous training will be conducted and the end of the quarter reviews and support will be provided on 3. Within 3 months of report preparation effectiveness 3. IFRs will be submitted to the Bank within 60 days after the end of the quarter 10 Audit issues 1. Within 3 months of 1 to 5-MoFED 1. Recruitment of external Auditors at early effectiveness 6a. MoFED stages of the project; 2. Within 3 months of 6b. MoFED/WB 2. Project annual financial statements will be year end prepared on time and strict follow-up on 3. Within 6 months of timely closure of accounts will be made. the end of each fiscal 3. Submission of annual audited financial year; statements and audit report including the 4. Within 2 months of management letter; submission of the 4. MoFED will submit the Government’s audit report to the response to the findings in the annual audit Bank report to Bank and an action plan for any 5. Annually follow-up actions. 5. Disclosure in accordance with Bank Policy: (a) the Bank requires that the Borrower disclose the audited financial 51 Action Date due by Responsible statements in a manner acceptable to the Bank; (b) Following the Bank’s formal receipt of these statements from the Borrower, the Bank makes them available to the public in accordance with The World Bank Policy on Access to Information. Financial Management Implementing Entities 27. At the federal level, MoFED will be responsible for the overall financial management of the project. This includes but is not limited to the management of the designated and the pooled ETB account, the transferring funds to BoFED and other federal level implementing entities, the responsibility for producing regular financial reports, and facilitating the annual audit of the project account. It will ensure that acceptable financial management systems are in place and are well-documented in FM manuals. It will also be responsible for oversight and coordination of the project, and for the funds transferred to it. Federal level implementing entities like MoWIE, WRDF (either through MoWIE or on its own), MoE, MoH, and others will be responsible for the funds transferred to them from the MoFED and will report on fund utilization to MoFED. 28. At the regional level, BoFEDs will be responsible for the management of the funds transferred to them for implementation. They are responsible for ensuring that acceptable accounting systems covering both regional and woreda levels are maintained. They will review and supervise the effective use of accounting procedures by woredas and other implementing entities at the regional level, and provide technical support and assistance to them. They will transfer funds to woredas, and other regional, zonal level implementing entities and follow up on advances and accountability of these advances. They will collect and aggregate all financial data and information from implementing entities and woredas on the project and report to MoFED. Regional level implementing entities like BoE, BoH and others will be responsible for the funds transferred to them from the BoFED and will report on fund utilization to BoFED. 29. At the woreda level, WoFED are responsible for the funds transferred to them and for the financial management aspects of the project. As WoFED is the last accounting center in the GoE PFM, it manages resources of sector offices under pool arrangement. The records of funds utilized will be maintained in accordance with sound accounting practices that are capable of generating accurate and timely information for verification. Among the various FM roles and responsibilities, WoFEDs ensures, at a minimum, to: (i) support in budget preparation and follow-up on budget execution as per approved plans and activities; (ii) undertake timely payments for eligible expenditures smooth implementation of approved plans and activities; (iii) exercise necessary fiduciary controls; and (iv) prepare and submit timely reports on fund utilization to the region (BoFED). Budgeting 30. Budget preparation in GoE: The Ethiopian budget system reflects the fiscal decentralization structure. The budget is processed at federal, regional, zonal (in some regions), and woreda and municipality levels. The budget procedures are documented in the Federal 52 Government of Ethiopia Budget Manual24. The budget for WaSHP will be proclaimed in the government budget and the details will be elaborated in the PIM. 31. Detail project budget preparation: The project budget is aligned with the WaSH Plan and follows a decentralized and integrated approach and hence works with regions and woredas. The planning is consultative, holistic and comprehensive and involves all stake holders. Plans will be initiated from the community/town residents and get consolidated as they go to the next higher level at the woreda, regional, and federal levels. The budgeting process at the woreda level will be prepared by WoFED based on the annual WaSH plan of WWT and woreda allocation, and will be submitted for approval to the Woreda Council. At the regional level, RWCO will prepare regional annual WaSH plan based on woreda and town WaSH plans and regional sector bureaus plans and submit an annual WaSH budget to BoFED to have it approved at the regional level. At the federal level, the NWSC will approve the national WaSH plan and budget which includes regional WaSH plans and federal sector ministries plans. The project also notifies the development partners, including the World Bank, of the annual plan and budget, and agreement is reached on the annual work plan and budget with donors, including the Bank. Once the budget is approved and proclaimed, the PMU at MoFED will notify regions and all implementing entities of the approved budget on time. Lessons learned from WSSP note that budget notifications to regions are often delayed. There were also observations where budgets, as well as actual performances, are not disclosed in public places. In view of the extended scope and design of WaSHP, as well as the lessons learned in WSSP, the FM Manual (including PIM/POM) will be revised on detail budgeting procedures and budget transparency tools. 32. Budget Monitoring: Actual expenditures should be compared to the budget on a regular basis, explanations should be sought for significant variations from the budget, and remedial actions should be taken as appropriate. The main tools will be budget codes, ledger cards, and budget tracking, reports, and analysis. Financial reports, including IFRs at different levels within the WaSH structure, should include a variance analysis, notes on financial management performances and explanations on material variances. A lesson learned from past performances is that budget monitoring is an area that needs to be improved. As such, the project is expected to review its FM Manual and clarify/identify detailed procedures that assure this. The FM Manual will be reviewed and revised to depict in detail procedure on budgets monitoring. Training will be conducted on the FM Manual within two months after the FM Manual is approved by the Bank which includes an in depth focus on budget monitoring and variance analysis. Accounting 33. Accounting Policies & Procedures - Government Accounting System: The Ethiopian Government follows a double entry bookkeeping system and modified cash basis of accounting. This is documented in the government accounting manual25 which provides detailed information on the major accounting procedures. At the woreda level, a pool system is in place where the WoFED is responsible for all FM aspects of woreda sector offices. 34. Financial Management Manual: The previous project, WSSP, has its own Financial Management Manual (FMM), which largely follows the government accounting manual, depicting all accounting policies, procedures, internal control issues, financial reporting, fund flow arrangements, budgeting and external audit. Hence, in view of the lessons learned under 24 Revised Federal Budget Manual 25 FGE Accounting System, Volume I 53 WSSP, the opportunities, scope and design issues of the WSSP, the FM Manual will be revised to improve it for the project’s need. It was agreed that the manual revision will be finalized within three months after project effectiveness. Training will be conducted on the FM Manual within three months after the FM Manual is approved by the Bank. 35. Accounting Software: For normal treasury funds, the Government uses Integrated Budget and Expenditure (IBEX) accounting system. The (IBEX) accounting system is now operational at the federal level, in regions and in most woredas. From the assessment and experience of the WSSP project, we observed that for recording project transactions as well as for reporting, a mix of systems is in use. Some use IBEX, while some use other accounting software like Peach Tree, MS EXCEL, while most use manual systems. However, it was observed that for the project purposes, a manual system is widely being used in a number of areas even for those places where IBEX is installed. It has been agreed with MoFED that IBEX will be rolled out on a standalone basis for the implementation of WaSHP starting from the FY of EFY 2007.MoFED will follow this up including the training required for Accountants at various levels. The use of accounting software, especially IBEX, is important but at the same time system capabilities should be carefully understood and a way forward should be proposed and agreed in the FM Manual. 36. Capacity Building/Training: Focused and continued training in financial management is essential for the success of the project. The training responsibility for government and project FM staff will be supported by the Bank on technical issues. Adequate funding should be allocated for this in the project document and procurement plans. 37. Staffing: MoFED, in consultation with regions, ensures that sufficient personnel are in place to handle financial management requirements at each level. MoFED should support regional BoFEDs, which likewise provide support to the woredas. A lesson drawn on staffing from WSSP, and as confirmed in assessment visits to the region is that in general there continues to be serious challenges in the area of staff turnover, particularly at the woredas. It has been confirmed that currently at all levels of implementation accountants responsible for WaSHP are in place. Based on the agreed plan any vacant FM positions will be filled with in three months of effectiveness. Internal Control and Internal Auditing 38. Internal control: Internal control comprises the whole system of control, financial or otherwise, established by management in order to ensure that funds are used for purposes intended in an efficient and effective manner. As discussed above, the FM Manual, which is largely in line with the Government’s internal control procedures, will be revised in many aspects. Lessons of WSSP on internal control raised a number of issues. There were weaknesses in the areas of budget discipline, transaction recording issues and failure to adequately support transactions/payments, property management issues, cut off issues, long outstanding receivables and payables and controls and follow-up thereof, inadequacy of supporting documents, ineligible expenditures, and cash management issues (like failure to do monthly bank reconciliations and cash counts, holding significant resources at hand, etc.), among others. These were consistent with the Management Letter issues reported in audit reports. Similar findings were observed in the Bank’s regional assessments. While basic internal controls existed, it was apparent that there were implementation gaps where adherence to the controls were weak and therefore require close monitoring and strengthening. The responsibility of ensuring that there are adequate internal controls in place for the project lies with MoFED, BoFED and WoFED. It is therefore 54 our recommendation that MoFED take appropriate measures to review the systems in place, identify gaps and prepare an action plan on how the gaps in the system will be covered going forward. 39. Internal audit: It is envisaged and agreed that the project will be subject to an internal post-audit review at all levels. This is to enable management awareness of internal control and compliance issues in a systematic fashion and in real time so that remedial actions are promptly taken. Past lessons and the Bank’s regional assessment visits indicate that the internal audit function in all regions and woredas visited was found to be especially weak. These weaknesses are systemic and well-recognized by MoFED, and many reform activities are planned and underway by the EMCP/MoFED to improve the internal audit system. In the meantime, through this project under WaSHP, that certain mitigation measures will need to be foreseen. As such, this project, under the leadership of MoFED, will: a. Hire/assign internal auditors at MoFED and BoFED to conduct internal audits; the Bank will be notified within three months of effectiveness. In addition the internal auditors will supervise the project’s internal control system every six months and furnish the status report to the association within 60 days of the end of the semester. b. Conduct capacity building trainings on internal audits along with the FM Manual trainings; c. The Bank will continue to track the performance of internal auditors as to whether the project was subject to internal audit reviews. The Bank and MoFED will continue to track. Funds Flow and Disbursement Arrangements 40. The World Bank funds will be deposited into a segregated US$ currency “Designated Account” at the National Bank of Ethiopia on terms and conditions acceptable to the World Bank. Six months of resources will be released as an initial advance to the designated account and will be stated in the Disbursement letter. Then resources will be transferred to the ETB account to be managed by MoFED. From the local currency account, MoFED will transfer funds to the local currency accounts to be opened by the regions (BoFED) and other federal level implementing entities (MoWIE, MoE, MoH). Similarly, regions will transfer resources to woredas/WoFED and zones and other implementing entities at the regional level (BoWE, BoE, BoH, etc.). 41. The funds flow to each implementing entity will be made according to their respective annual work plan and budget. Any implementing entity which does not report how the advance is expended in a timely manner will not be able to get funds until the time of the settlement of the initial advance. The FM Manual will indicate in detail the procedure of funds flow to each tier of implementing entity. Lessons learned from the WSSP indicate weaknesses in the size of advances and that the regions’ track record in settling advance balances transferred to them was a persistent and challenging concern for the better part of the project life. Internal control issues on cash management also existed. Regions complained about the delay of resources to them, in turn affecting project implementation. The FM Manual, once revised, will clearly lay out fund release parameters. 42. Report-based disbursements will be made quarterly and cover cash requirements for the next six months, based on the forecasts contained in the IFRs. Provision would also be made in 55 the Disbursement letter for the other disbursement methods, i.e. direct payments, special commitments and reimbursements. Although it is not envisaged now, if in the future, other donors decide to join the World Bank financing for this project, then the Bank’s minimum fiduciary requirements should be met and financing shares of the respective partners to finance the annual work plan and budget would be agreed and disclosed in each IFRs. Funds flow of the project to the various project institutions which will handle project funds, are presented in the diagram below. Figure A3-1 Flow of Funds and Reporting IDA US$ Segregated Designated Account at National Bank of Ethiopia managed by MoFED ETB account at MoFED Federal level IA Zones ETB account BoFEDs Regional level IA Birr account WoFEDs Fund Flow Reporting Financial Reporting 43. MoFED prepares the entities or project financial statement and submits to users be it internal or external, government or donors. For this project, after consolidating the regional reports, MoFED will submit the IFRs to the Bank within 60 days after the end of the quarter. The existing formats of the WSSP IFR reviewed and revised for WaSHP by MoFED was agreed with IDA during project negotiation. In addition, the formats will be included in the project FM Manual. 56 44. Reports should be derived from the system and the IFR will include: (i) a statement of sources and uses of funds, with quarterly and cumulative opening and closing balances; (ii) statement of uses of funds that show actual expenditures. These are appropriately classified by main project activities (categories, components and sub-components). They will also include an actual versus budget comparisons for the quarter and cumulative; (iii) a statement of six-month cash forecast/ requirement; (iv) notes and explanations; (v) a statement on the project's Designated Account including opening and closing balances and the movements (inflows and outflows); and (vi) other supporting schedules and documents including aging analysis of advances and receivables. The annual financial statements will adopt the same format as the quarterly reports and may also include other issues. However, the annual financial statements do not need to include the statement of cash forecast/requirement. The audit TOR includes the content of the audited project financial statement. 45. Current lessons indicate that the WaSH financial reports are being submitted on time with gradually improving quality but still require improvements. Woredas and regions have improved on the timely submission of their reports but the quality still needs improvement in areas of proper budget analysis and reconciliation of reports, Thus, it is agreed that the revised FM Manual will clarify reporting requirements at all levels accompanied by training on report preparation. MoFED and BoFED should continue to undertake adequate reviews and checks on the reports submitted to them from the next lower levels. Auditing 46. Annual audited financial statements and audit reports (including Management Letter) of the project will be submitted to the Bank within six months from the end of the fiscal year using auditors26 acceptable to the Bank. The auditor will be appointed within three months of project effectiveness. To ensure rotation of auditors in line with good practice, and considering the five year life span of the project, the auditor assigned office of Federal Auditor General (OFAG) would have a maximum term of three years (non-renewable). 47. In accordance with the Bank’s policies, the Bank requires that the Borrower disclose the audited financial statements in a manner acceptable to the Bank. Following the Bank’s formal receipt of these statements from the Borrower, the Bank makes them available to the public in accordance with The World Bank Policy on Access to Information. 48. The annual financial statements prepared in accordance with acceptable standards will be prepared within three months of the end of the fiscal year and provided to the auditors to enable them to carry out and complete their audit on time. The auditor would express an opinion on the project financial statements. The audit will be carried out in accordance with the International Standards of Auditing (ISA) issued by the International Federation of Accountants (IFAC). The auditor will also provide a Management Letter which will inter alia outline deficiencies or weakness in systems and controls, recommendations for their improvement, and report on compliance with key financial covenants. The TOR for the audit was agreed at negotiations and will be included in the FM Manual. Lessons drawn from WSSP on audits noted that reports are submitted on time and reports were not qualified (especially recent ones). However, there are a number of internal control and compliance issues observed in the Management Letters. Follow- 26 The audit will be carried out by the Office of Federal Auditor General (OFAG), or a qualified auditor to be selected in collaboration of OFAG from auditors acceptable to the Bank, following agreed procurement procedures 57 up of all parties including MoFED to avoid recurrence of findings is weak. Thus, MoFED should exert extra effort and attention to address this issue. If there is capacity gap then it should be filled. 49. MoFED and all project institutions will take the necessary follow-up actions on the audit reports. MoFED will submit the Government’s response to the findings in the annual audit report to the Bank and an action plan for any follow-up actions within two months of submission of the audit report to the Bank. Financial Covenants and Conditions 50. FM-related covenants in the Financing Agreement include: a. Maintenance of a satisfactory FM system for the program; b. Submission of IFRs for the program for each fiscal quarter within 60 days of the end of the quarter; c. Submission of annual audited financial statements and audit report within 6 months of the end of each fiscal year; and Supervision Plan 51. The project will be subject to full on-site supervision, at least twice a year on the basis of the current FM risk assessment after mitigation measures. After each supervision, the risk will be measured and recalibrated accordingly. Supervision activities will include: compliance with the agreed upon FM arrangements; review of quarterly IFRs; review of annual audited financial statements as well as timely follow-up of issues arising; transaction review; participation in project supervision missions as appropriate; and updating the FM rating in the Implementation Status Report (ISR). Governance and Anti-corruption 52. Most public bodies at the federal and regional levels have an anti-corruption officer who has the responsibility of acting on suspected fraud, waste or misuse of project resources or property. Employees of the public bodies can complain to the officers about concerns they have with regard to governance and corruption issues. The following are key governance and anti- corruption risks and associated mitigating measures placed in the design of the project: a. Resource allocation, budgeting and budget monitoring: Mitigation measures include: the country’s strength and discipline in executing budget and compliance with the existing government regulations; the project will clarify and improve budget monitoring as well as budget transparency tools in the revised FM Manual; there is high stakeholder involvement in the budget preparation of WaSHP which follows a bottom-up approach up. Trainings will be conducted including budget monitoring and variance analysis. The IFR will have this format for follow up by donors. b. Funds flow risk: Funds flow oversight is designed by attaching the coordination unit to the sector ministry and bureaus which have strong internal control mechanisms. Stringent checklists will be developed as part of the FM Manual to include issues pertaining to reports from woredas to regions. Training will be provided on report preparation. All transactions between implementing entities will be made through acceptable banks which are all government-owned banks in this case. Capacities at all levels will be increased so that quality reports are prepared and submitted on time. 58 c. Internal control risk: Capacities at all levels will be assessed and increased as appropriate to so that staff carry out and supervise key control functions at all levels of the project; the internal audit functions are being strengthened by projects such as PBS; an internal auditor will be recruited or appointed at MoFED and in the regions. The internal audit directorates/departments or internal auditors are expected to review the projects as per their annual program; the FM Manual will include detailed internal control procedures with regard to soft expenditures starting from the initiation of transactions to the approval of the expenditures and also on safeguard of assets including annual physical inspection. The scope of external audits includes assessment of internal control area. The audit is conducted annually. d. Financial reporting risk: The external audit work is sufficient to verify consistency with underlying transactions and records. The auditors will verify whether or not expenditures reported on IFR basis are eligible. WaSHP will have a format for quarterly reports to be agreed upon in negotiations. The FM Manual for the project will define the time table of reporting for each implementing entity and there are efforts to roll out IBEX at lower levels. e. External audit risk: PFM reforms will aim to address quality issues of external audits, and external auditors should be acceptable to the Bank. Audits will be conducted following ISA issued by IFAC. The ToR of the audit will be reviewed to ensure that it addresses risks which will be agreed at negotiation. The main tasks of MoFED/COPCU will be to follow up on audit findings. The ToR of the finance officers will indicate their responsibility for addressing audit findings in a timely manner. Development Partners (DPs) will also follow up on action plans. 59 III. Procurement General 53. Procurement under the project to be financed by IDA would be carried out in accordance with: (i) "Guidelines: Procurement of Goods, Works, and non-Consulting Services Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011; (ii) "Guidelines: Selection and Employment of Consultants Under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011; (iii) “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants” dated October 15, 2006 and revised in January, 2011; (iv) introduction of Exceptions to National Competitive Bidding Procedures; and (v) the provisions stipulated in the Legal Agreements. Bank standard documents shall be used for procurement of goods and works through International Competitive Bidding (ICB) and for all consultants exceeding US$200,000. National competitive bidding will use government standard bidding documents and procedures subject to the exceptions included below. 54. A Procurement Plan acceptable to the Bank covering at least the first eighteen months shall be prepared prior to Credit Negotiations. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame would be agreed between the Borrower and IDA WB task team in the Procurement Plan. The Procurement Plan would be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. 55. A General Procurement Notice (GPN) will be prepared and published in United Nations Development Business (UNDB), on the Bank’s external website and in at least one national newspaper after the project is approved by the Bank Board, and/or before project effectiveness. Specific Procurement Notices for all goods and works to be procured under International Competitive Bidding (ICB) and Expressions of Interest for all consulting services to cost the equivalent of US$200,000 and above would also be published in the United Nations Development Business (UNDB), Bank’s external website and the national press. Procurement Risk Assessment 56. As part of the project preparation, the World Bank Procurement Specialist has undertaken a procurement risk assessment of implementation arrangements of the WaSH sector. The assessment is based on experience under the recently closed WSSP. WaSHP is expected to continue using similar arrangements as under WSSP. The assessment addresses the arrangements in the federal Ministry of Water, Irrigation and Energy, the regional BoWR, and the Woreda Offices. Procurement risk is identified to be high. 57. Since the start of the WSSP program, progress has been made in establishing and strengthening procurement capacity at federal and regional levels. The capacity to perform basic procurement activities has been improved through various tailor-made clinics provided by the Bank as well as the basic and intermediate procurement trainings provided to regional and federal PMU staff both in country Ethiopia Management Institute (EMI) and abroad. Despite the progress made, there are major areas of concern that need further improvement. 60 58. MoWIE: The role of MoWIE has been and will continue to be that of coordination, monitoring, capacity building, and being the contact point of interaction with the Bank for ICB contracts. The Ministry has established a Project Management Unit under the Water Supply and Sanitation Directorate. The PMU at MoWIE has a Procurement Management Section that is responsible for coordination of procurement activities under the project. The unit is staffed with Procurement Specialists and Technical Experts that undertake the required tasks of coordination, monitoring and capacity building of various implementing bodies under the project. Currently the unit is staffed with 22 professionals, of which only two are Procurement Specialists burdened with all procurement administration responsibilities for WSSP project as well as Urban Water Supply and Sanitation Project (UWSS) project. Given the highly decentralized implementation arrangement of the project, the PMU is the front office that creates interface between the Bank and the project. 59. Experience has shown that the role of Procurement Specialists, as well as Technical Experts, under the PMU is very critical for the successful implementation of project activities. During the earlier project period, consistent capacity has not been observed in the PMU, particularly relating to procurement implementation. For most of the project period, the PMU has functioned with limited number of Procurement Specialists because of high staff turnover. As a result, it was not possible to fulfill even the basic requirements of the project like compilation of procurement plans and contracts registers. Because of the capacity limitation, the quality of ICB documents submitted for the Bank’s review was below standard and a number of ICB contracts were delayed. The linkage of the PMU with regions, towns, and woredas was weak, and procurement implementation monitoring was limited. Going forward, it is critical that the PMU should be staffed with an adequate number of qualified Procurement Specialists who can provide timely support to implementing bodies, compile and submit to the Bank updated procurement plans and contract registers, facilitate ICB bids with quality assurance, oversee and support NCB contracts, regularly monitor and report on procurement implementation, and other coordination tasks. Past experience has shown that around 20 ICB, 95 NCB and 15 Quality and Cost Based Selection (QCBS) contracts can be processed within a year, and WaSHP project may need to process more than these numbers of contracts. 60. It is therefore recommended to: (i) recruit and assign six Procurement Specialists (PS) in the PMU. These include one Senior Procurement Specialist who will supervise all region level procurement implementation and all PS transactions, and one Procurement Specialist for two regions to monitor and provide support; (ii) deploy two Contract Administration Officers within the procurement team to monitor and provide support on contract management issues by complementing the activities of the Procurement Specialists; (iii) prepare format for a procurement status tracking system and for contract administration follow-up, and regularly report based on an agreed format; data entry personnel should be assigned for this purpose; (iv) strengthen the technical support team to review and standardize Technical Specifications to address weaknesses observed in the earlier project; and (v) the team should be supported with office facilities and logistical arrangements to travel frequently to the regions. 61. Water Resource Development Fund: The office has the role of determining towns’ eligibility for getting loans based on the feasibility of their utilities’ business plan. Those towns that are eligible to get loan from this office are expected to repay in full the loan amount through a predetermined duration. Once a particular town gets a loan, this office is closely involved in the 61 implementation activities of the town. This includes procurement processes as well as contract administration activities. The office appraises subprojects and monitors implementation of approved subprojects. This may involve review of procurement plans, bidding documents, evaluation reports, and monitoring of contract administration activities. To undertake this responsibility, it is recommended that the office should be staffed with at least one Procurement Specialist. 62. Regional BoWRs: Due to the decentralized nature of the project, regions play a critical role during implementation. The regional Water Bureaus have full control of procurement administration and decisions. The WSS Project Management Units under the Bureaus execute procurement and contract administration processes with the overall decision made by the Bureau head. The assessment indicates that the challenges and issues are similar across all regions and there is a need to address these issues in the WaSHP project. The following are the main issues identified: a) Delegation to regions: Because of the highly decentralized nature of the project and capacity limitations in the regions, the MoWIE plays a procurement oversight role. The ministry used to review and clear all NCB contract processes in all regions that are not subject to the Bank’ prior review. However during FY2011 it was decided to give full delegation to the four large regions to undertake their NCB procurement processes without the involvement of MoWIE. It was also decided that together with the delegation, the regions should be responsible to prepare and deliver regular procurement performance reports as well as to submit all required procurement documentation including updated procurement plans, and regularly updated contract registers. However regions did not fulfill this responsibility and it became a main weakness of the project. In addition, because regions were not receiving timely feedback and oversight, they were making a number of inconsistent and non-compliant procurement decisions putting the implementation of the project at risk. Going forward in WaSHP, it is recommended that the ministry will undertake close monitoring of activity in delegated regions and within the first year, the four regions will demonstrate that they have put the necessary systems in place to provide the required reporting and documents regularly. After the initial year, a review will be made on the performance of the four big regions and those that performed satisfactorily will get renewed delegation, while those that do not perform as required will get their delegation suspended until the next year, by which time they should ensure that the necessary systems are put in place. The performance evaluation will be conducted at the end of each year and the delegation will continue to be renewed or suspended depending on performance. b) Staffing: The review notes an inadequate number of qualified Procurement Specialists in all regions. Most people assigned for the position of Procurement Specialist were not adequately trained and most are not qualified. Particularly, in Benishangul Gumuz, and Gambella regions, Procurement Specialists were not even assigned. Those regions that managed to get proficient Procurement Specialists that have experience with training, could not hold these staff for long, as there is high turnover. When staff leaves, there is no proper transfer of procurement documents and status of activities. This has resulted in delays in procurement implementation, absence of updated procurement plans, unavailability of updated procurement registers, poor quality of document, etc., which affected project implementation. It is recommended that at the regional level the 62 following number of qualified Procurement Specialists should be deployed without interruption and when staff leave there should be proper handover of documentation and status: Oromiya 4; Amhara 3; SNNP 3; Tigray 2; and one each in Afar, Gambela, Somali, Benishangul, Harari, as well as in Dire Dawa. It is also recommended that: (i) each assigned Procurement Specialist should attend procurement training that is regularly delivered in the Ethiopian Management Institute in collaboration with the Bank; and (ii) the assigned Procurement Specialist should be offered contracts for the entire duration of the project, renewable annually based on performance that will be defined in the contract. c) Record keeping: Continuous assessments and reviews show that PMUs in the regions do not maintain adequate written records of procurement contract documents in one place. Procurement documents are being filed at different places and the retrieving process is not easy and consumes much time when required. In some cases it is not even possible to find records of specific procurement processes. In most places it is observed that no sufficient space and facilities are allocated for keeping documents. It is recommended that adequate office space and facilities should be given for procurement staff, and procurement documents should be properly kept in a way that can be retrieved easily when required. d) Timeliness of procurement Implementation: The assessment notes that there are often prolonged delays in procurement implementations. There is no adequate monitoring mechanism to systematically check if procurement implementation is going according to the plan. In many cases procurement activities are not initiated in time, and procurement decisions are not taken on time. It is recommended that a framework should be developed and implemented to better track and resolve procurement implementation delays. As part of the framework, the MoWIE will develop and implement business standards for procurement actions/decisions and will share it with the Bank. e) Procurement Planning: It is observed that procurement planning (PP) has been a chronic problem under the project. The project suffered for lack of updated PP for the past three years. Though the Bank requires an annual update, at a minimum, it was a challenge to get updated procurement plans from regions. Because record keeping is poor, regions could not submit acceptable procurement plans that show status of contracts in progress. Officials do not recognize procurement plans as a monitoring tool. This has led to delays and not knowing what to initiate and when. It is recommended that realistic procurement plans be prepared, the plans be updated at least annually, and that the PMU should review and compile and submit for the Bank’s approval. It recommended that the PMU Procurement Coordinator will lead the preparation of plans in a consultative manner at the beginning of each fiscal year by involving key regions and staff. Together with the procurement plans, contracts when awarded should be registered and the contract register should be updated as and when required, and regularly. PMU should regularly compile registers and share with the Bank. It is also recommended that each regional PMU should compile procurement plans from towns and include these as part of the regional procurement plans. It is further recommended that a simplified procurement plan format should be prepared specifically for woredas, and regions should compile these for inclusion in the regional plans. f) Bidding: Continuous post reviews and assessments indicate a number of limitations during bidding. These limitations include poor quality of bidding documents, use of non- 63 standard documents, unclear evaluation and qualification criteria, bidding documents with no specification, non-use of Request for Quotation (RFQ) for shopping, missing contract conditions from contract documents, etc. In some cases, it is also observed that there is difficulty in differentiating between procedures for Consultancy and Works, where a similar procedure for works is used for consultancy. Unacceptable practices like the use of brand names in bidding documents have been observed. Unattainable delivery time in bidding documents for goods/services/works results in a failure to attract bidders. More often, contract administration problems occur because of poor quality bidding documents. It is recommended that: (i) there should be quality assurance system on bidding documents, where a team of technical specialists and PSs should check bidding document before their issuance to bidders; and (ii) MoWIE prepare, as part of the PIM, prototype bidding documents for use by regions and towns, and also simplified documents for woredas that will be approved by the Bank. g) Evaluation: The assessment identified evaluation as the main reason for implementation delays. On average, evaluation takes more than six months. In most cases, evaluation committee member are assigned that have no capacity to understand the subject and do not know Bank requirements. Reviews indicate a number of non-compliant practices that include the use of evaluation criteria that were not included in the bidding documents, inconsistent application of responsiveness criteria, use of a merit system, no proper evaluation reports and decision minutes, not carrying out post qualification, rejection of bids without adequate reasons, etc. It is recommended that all involved in procurement decision should receive training and the PMU should give adequate support and exercise proper oversight functions. h) Publication: As part of ensuring transparency of procurement process, publication of procurement information is essential. Though bid opportunity publication are announced in national newspapers for competitive bids, publication of contract award decisions using similar advertisement media, is not practiced by all implementing agencies. It is recommended that the project ensure that procurement award decisions are posted for the public in the same media where bid opportunities are advertised. Given the size of the project, it is also recommended to create a website where all documents, awards etc. can be published. i) Contract Administration: The assessment notes one that of the major challenge areas under the project is contract administration, which is almost a neglected aspect of implementation. There is no proper monitoring and follow-up system of contract administration. Statuses of contracts are unknown. At almost all reviewed implementing agencies’ contracts are extending beyond the contracted time. But remedial actions are not taken and contract time extensions are not approved, as per provisions in the contract. Most contracts performance bonds do not cover the defect liability or the warrantee periods. In most cases, there is no experience of requesting advance payment guarantee and performance bond guarantee extensions for contracts that extend beyond the original contract period. The General Conditions of Contract (GCC) and Standard Conditions of Contract (SCC) of the bidding documents are not included in the contract agreement documents. Purchase orders are not used in most of the reviewed contracts, which were carried out using shopping procurement method. There is no evidence of project site hand-over and project acceptance (provision and final) in the files at all levels. It is 64 recommended that a strong contract administration and monitoring system should be put in place, and a format be prepared and agreed for regular reporting and updating of status of activities. 63. Towns: Towns’ utilities are expected to undertake some procurement activities as capacity permits. Existing experience indicates, however, that there are no procurement specialists at the town utilities. As a result, most procurement is done by the regions. There are two types of towns under the project. The first types are small towns that are fully under regional Bureaus and all procurement is handled by regions. The second types are towns that are eligible to get a loan from the Water Resource Development Fund and are expected to fully repay the loan. These towns are expected to be autonomous. However, past experience has shown that these towns do not have procurement specialists and do not have knowledge of procurement procedures though they engage procurement processes. It is recommended that: (i) procurement Specialists should be recruited and assigned for sub-loan towns that engage in the procurement process; (ii) town utilities should establish proper procurement systems with an appropriate record keeping protocol; and (iii) the Town Support Groups that are established by the project in each region should include at least one Procurement Specialist as part of team member. 64. Woredas: Woredas are expected to undertake small value procurement activities under the project. Generally, woreda procurement system in the country is weak, with no procurement capacity at this level. Procurement faces the highest risk when woredas undertake the procurement processes. Promotion of basic Services (PBS) III project has a separate plan to strengthen woreda procurement system. Because capacity at is almost nonexistent in most woredas, when faced with a need for procurement of civil works, they delegate responsibility to the regions. Past experience indicates that competition is low because of limited market, and most of the time there is a tendency to directly award contracts without following proper procedures. At the woreda level, a finance and procurement pool is responsible for all procurement irrespective of sector and project. The staffs assigned in the pool are not well trained in procurement and are overloaded with tasks forwarded from several sector offices and projects, in addition to dealing with financial administration and accounting task for the woreda. The approval for procurement contracts in each woreda is delegated to the WoFED Heads or Deputy Heads of each woreda on the basis of the final recommendations made by the Tender Committees. Procurement planning can be characterized as nonexistent in woredas. Procurement activities are initiated based on a general annual action plan, adding an additional burden on procurement officers who continue to receive unplanned and instant procurement requests. It is recommended that: as part of the eligibility criteria to access WaSH funds, a woreda should hire a project Procurement Officer. The procurement expert will help in collecting and providing procurement as well as contract data, in addition to processing procurement activities. Woredas should also provide the required facilities for the procurement experts. In addition, the Woreda Support Group (WSG) established under the project should include at least one procurement specialist as a member, and prepare simplified procurement plan format for woredas and ensure procurement activities are implemented based on agreed plans. 65. Community: The project envisages participation of communities in implementation and procurement activities of small scale schemes. As provided under article 3.19 of the Procurement Guidelines, the procurement procedures to be followed by community groups will be elaborated in a separate manual that will be approved by the Bank. It is expected that the project will establish a Community Facilitation Team (CFT) and it is recommended that at least one member 65 of each CFT Team take procurement training and support communities in their procurement activities to ensure that the procedures outlined in the manual are consistently observed. 66. Ministry of Health: The project intends to allocate 20 percent of the funds to Hygiene and Sanitation related activities. Though the major activities under this component are undertaken at decentralized levels, the MoH is responsible for the coordination of health-related activities of this component. The MoH has plans to procure water quality test kits, IT equipment, and vehicles. As per the existing health sector procurement arrangement, all health-related equipment and pharmaceuticals are procured by the Pharmaceutical Funds Supply Agency (PFSA); under this project PFSA will also procure the water quality test kits as well as any other related items. The MoH will procure IT equipment and prepare and get approval of procurement plans for items that will be procured by its procurement unit and PFSA. Regarding vehicles procurement, it is recommended that if the need arises MoWIE will procure in bulk all vehicles requirements under the project including for regional offices and hand over to the respective agencies. It is expected that a major part of expenditures under the Hygiene and Sanitation component will be undertaken by regional Health Bureaus. The regional PMUs under BoWRs will compile procurement plans under the component and provide procurement support to the Health Bureaus. 67. Ministry of Education: The MoE will also be responsible for coordination of Hygiene and Sanitation activities that are relevant for the Education sector. The procurement implementation will follow similar arrangement to that described for the health sector above. 68. Markets: The previous project had faced market challenges that affected implementation. The assessment identified high risk areas related to the market condition for water and sanitation goods and works, based on lessons from the previous project. The assessment has identified the following main risk areas: a) Limitation of drilling companies: One of the main challenges during implementation has been a shortage of drilling companies as well as drilling rigs for exploitation of underground water resource. Most delays under the project are attributed to lack of deep drilling rigs. A study conduct on the issue indicates that there are a total of 68 drilling contractors operating in the country. Most with outdated rigs, and only 20 percent of operating rigs in good condition. According to the study, 355 drilling rigs are required to meet the GTP target related to groundwater development, and the current available is maximum 60 rigs indicating a shortfall of 83 percent. It can be seen there is a huge supply and demand gap that needs to be addressed through an effective incentive mechanism to attract investment and participation in the field. It is recommended that the opportunities offered to engage in drilling contracts need to be advertised widely as part of General Procurement Notice and other means; b) Few bidders for Pipes and Fittings (P&F), and for Electromechanical Equipment (EM): During the implementation period of the previous project, it was observed that very limited number of bidders participate in bids for P&Fs and EM. The same bidders were observed participating and getting awards for contracts in different regions and towns. Because suppliers were stretched from numerous commitments, delays in supply and delivery of much needed goods and equipment were observed. The assessment also identifies a risk of not getting competitive prices as a result of the limited suppliers. It is recommended: (i) to keep price records of P&Fs and EM and track the prices against 66 international market prices and identify unreasonably high priced bids; and (ii) improve packaging of procurement opportunities to attract more bidders. c) Civil works contractors’ capacity and delays: Most civil works contracts under the previous project faced delays because of capacity limitations of contractors deployed. The delays were further exacerbated as a result of lack of timely decision from clients on issues raised during construction. The assessment notes this as a high risk area going forward in the WaSHP project. It is recommended that proper qualification evaluation be carried out during contractor evaluation to ensure that contractors with experience and with financial capacity are awarded contracts, while at the same time strengthening the clients’ capacity in the area of contract management as mentioned above. d) Participation of SOEs: There are a number of government-owned enterprises that engage in the area of water works design and construction activities. The federal government and all regions have established two entities each under their jurisdiction, one dealing with design and the other dealing with construction. Article 1.10 (b) of the Bank’s Procurement Guideline stipulates that government-owned enterprises may participate in a bid if they can establish that they are: (i) legally and financially autonomous; (ii) operate under commercial law; and (iii) are not dependent agencies of the Borrower (and or owned by the implementing agencies). When the Bank was faced with participation of water enterprises during Prior Review processes, it reviewed the legal documents of particular enterprises and established that they were not eligible. Based on previous experience it is highly likely that these water enterprises are not eligible to participate in a bid for Bank financed contracts. It is recommended, since these enterprises are publicly owned, they are considered as a Force Account unit of government, and as such could be considered to participate in construction activities using Force Account method. Under such special circumstances where Force Account method is recommended, each contract proposal shall be based on adequate justification and will be subject to the Bank’s prior review as provided under article 3.9 of the Bank’s Procurement Guideline. Table A3-5 Action Plan for Procurement Severity and impact Issue / Risk Mitigation Measure Responsible on project ‐ Assign One Senior Procurement Specialist Weak coordination, High. Delay in (PS) as coordinator, and one PS for two monitoring, and implementation, and regions (total 6 PSs) MoWIE support from occurrence of non- ‐ Prepare and agree on reporting format and MoWIE PMU compliant procedures regularly monitor ‐ PMU will lead annual PP update exercise with regions and will compile for approval ‐ Regional BoWR PMUs will coordinate Absence of updated MoWIE High. Poor project towns and woredas and compile annual procurement plans PMU/Regional performance, delay, PPs and Contract Registers and submit to (PP), and contract PMUs/Towns/ and non-compliance MoWIE PMU registers Woredas ‐ All implementers will register all signed contracts and MoWIE PMU will compile contract register regularly Inadequate High. Delay, poor ‐ Assign the following number of PSs at MoWIE procurement staff at project performance, regional PMUs PMU/Regional regions, towns, poor quality,  Oromia: 4 PMUs/Towns/ 67 Severity and impact Issue / Risk Mitigation Measure Responsible on project woredas implementation  Amhara: 3 Woredas problems, non-  SNNP: 3 compliance  Tigray: 2  Others: 1 each ‐ Assign one PS for each loan town ‐ Assign one Procurement Expert for each eligible woreda High. Lost skill, ‐ All procurement staff to undergo 3 weeks MoWIE High procurement delayed training at EMI PMU/Regional staff turnover implementation, poor ‐ Offer performance contracts to procurement PMUs/ recording staff for duration of project High. Difficult to ‐ Keep records in a way that can be retrieved audit, review, and Regional easily Poor record keeping resolve disputes. PMUs/Towns/ ‐ Allocate sufficient space and facilities for Facilitates abuse and Woredas procurement functions corruption Timeliness of MoWIE High. Procurement ‐ Develop and implement business standards procurement PMU/Regional delays for procurement actions/decisions Implementation PMUs/ High. Poor quality documents, problems ‐ Develop prototype bidding documents MoWIE Limitations in in contract stages, ‐ Establish quality assurance systems PMU/Regional bidding processes non-compliance PMUs practices, poor bid competition, High. Delays in ‐ Training to all involved in procurement MoWIE Limitation during procurement decisions PMU/Regional bid evaluation stage decisions, non- ‐ Close support and monitoring by PMU PMUs compliant practices ‐ Post award decision in the same media where High. Non transparent Publication of bid opportunity was posted process, fraud and MoWIE awards ‐ Create website for project information and corruption link with FPPA website ‐ Establish strong contract administration and High. Delays, MoWIE Contract monitoring system increased cost, project PMU/Regional Administration ‐ Prepare and agree on format for regular not meeting target PMUs reporting of status High. Delays, poor MoWIE Capacity limitation ‐ Assign one PS for each loan town performance, non- PMU/Regional at loan towns ‐ Include one PS in Town Support Groups compliant procedures PMUs/Towns ‐ Assign one PS for each woreda High. Delays, poor MoWIE Capacity limitation ‐ Include one PS in Woreda Support Groups performance, non- PMU/Regional at woredas ‐ Prepare simplified procurement plan format compliant procedures PMUs/woredas for woredas ‐ Prepare separate manual for community Capacity limitation High. Delays, poor MoWIE participation in procurement at community performance, non- PMU/Regional ‐ Include one procurement officer in each groups compliant procedures PMUs Community Facilitation Team High. Project ‐ Consider incentive mechanism to attract Limitation of implementation investment in the field MoWIE/ PMU drilling companies delays, not meeting ‐ Advertise widely the GPN result target Few bidders for High. Delays in ‐ Keep systematic record of prices and identify MoWIE 68 Severity and impact Issue / Risk Mitigation Measure Responsible on project P&Fs and EMs delivery of goods, unreasonable high prices PMU/Regional high prices ‐ Improve packaging to attract more bidders PMUs High. Project Civil works ‐ Ensure contractors with experience and with MoWIE implementation contractors capacity financial capacity are awarded contracts PMU/Regional delays, not meeting and delays ‐ Strengthen contract administration system PMUs result targets ‐ SOEs will participate in Force Account MoWIE Participation of method under special circumstances and High. Non-compliance PMU/Regional SOEs in bids cases (e.g. drilling) as provided under article PMUs 3.9 of Guideline Applicable Procurement Methods and Thresholds 69. Applicable Procurement Methods: Selection of procurement methods shall be in accordance with the Bank’s guidelines (as stated in paragraph 53 above) and shall be indicated and agreed for each of the procurement packages in the respective procurement plans of the program. 70. In view of the above, procurement of goods and services above the stated thresholds shall be undertaken through International Competitive Bidding (ICB) procedure using the Bank’s latest Standard Bidding Document. Procurement of Goods and Non-Consulting Services which are below the ICB threshold indicated in Table A3-5 below can be procured through the National Competitive Bidding Procedure. Procurement of off-the-shelf goods and commodities of small value contracts of less than US$50,000 equivalent may be procured using Shopping procedures in accordance with paragraph 3.5 of Bank Guidelines. Procurement of simple works contracts with value up to US$100,000 equivalent may be procured using shopping method. Where it has been determined to be to the advantage of the operation, Procurement of Goods and non- Consulting Services under Direct Contracting shall be procured in accordance with paragraph 3.7 of the Bank’s Guideline. Given the expectation of numerous small value works contracts particularly related to development of shallow wells, works contracts through Direct Contracting method having value less than US$1,000 will not require the Bank’s prior review as per para 3.7. However, the cumulative value of works contracts awarded through Direct Contracting method by a single Implementing Agency shall not exceed US$10,000 equivalent per year. It should be noted this threshold is only applicable to works contract and is not applicable to goods contracts. The project will involve community participation in procurement, and as per article 3.19 of the Procurement Guidelines, the procurement procedures to be followed by community groups will be elaborated in a separate manual that will be approved by the Bank. 71. Selection of Consultants shall be carried out using Bank’s latest Standard Request for Proposal. Consulting firms for services estimated to cost more than US$150,000 equivalent would be selected through Quality and Cost Based Selection (QCBS) method. Contracts with consulting firms services estimated to cost less than US$150,000 equivalent may be selected using Selection Based on Consultants’ Qualification (CQS) method as well as QCBS method. Individual consultants will be selected on the basis of their qualifications and in accordance with Section V of the Bank’s Guideline for Selection and Employment of Consultants. Consulting services for audits and other services of a standard or routine nature may be procured using the Least Cost Selection Method while Single Source Selection may be used when justified in 69 accordance with paragraph 3.8 of the Bank’s Guideline. For consulting services of value less than US$200,000 equivalent, shortlists may be comprised entirely of national consultants in accordance with paragraph 2.7 of the Guideline. However if the consultancy service is for Engineering and Contract Supervision, shortlists may comprise entirely of national consultants for values up to US$300,000 equivalent. When there is need for capacity reasons to access exceptionally qualified expertise and in accordance with paragraphs 3.15 and 3.16 of the Guideline, UN agencies and NGOs could be employed to assist in case they have an advantage over commercial firms. 72. Prior Review Threshold: The thresholds for Bank’s Prior Review and for International Competitive Bidding (ICB), including the maximum contract value for which the short list may comprise exclusively Ethiopian firms in the selection of consultants, are presented in the table below for purposes of guiding the preparation of the initial procurement plan. The procurement capacity of implementing agencies will be reviewed annually and the threshold will be revised according to the improvements or deterioration in the procurement capacity. Additionally, each procurement plan will indicate the number of contracts procured through National Competitive Bidding procedures or selection of consultants having a short list of exclusively Ethiopian firms that will be subject to prior review as part of risk mitigation. Table A3- 6 Prior Review Thresholds Category Prior Review ICB Threshold National Short-List Threshold (US$) (US$) Max Value (US$) Works ≥5,000,000 ≥7,000,000 NA Goods, IT Systems, and Non-Consultancy ≥500,000 ≥1,000,000 NA Services ≤200,000; Consultants (Firms) ≥200,000 NA ≤300,000 (for Engineering and Contract Supervision) Consultants ≥100,000 NA NA (Individuals) 73. National Competitive Bidding Procedures. National Competitive Bidding (NCB) shall follow the Open and Competitive Bidding procedure set forth in the Ethiopian Federal Government and Procurement and Property Administration Proclamation No. 649/2009 and Federal Public Procurement Directive issued by the Ministry of Finance and Economic Development dated June 10, 2010, provided that such procedure shall be subject to the provisions of Section I and Paragraphs 3.3 and 3.4 of the “Guidelines for Procurement of Goods, Works, and Non-Consulting Services under IBRD Loans and IDA Credits & Grants by World Bank Borrowers” (January 2011) (the “Procurement Guidelines”) and the following additional provisions: a. The Recipient’s standard bidding documents for procurement of goods and works acceptable to the Bank shall be used. At the request of the Borrower, the 70 introduction of requirements for bidders to sign an Anti-Bribery pledge and/or statement of undertaking to observe Ethiopian Law against Fraud and Corruption and other forms that ought to be completed and signed by him/her may be included in bidding documents if the arrangements governing such undertakings are acceptable to the Bank. b. If pre-qualification is used, the Association’s standard prequalification document shall be used. c. No margin of preference shall be granted in bid evaluation on the basis of bidder’s nationality, origin of goods or services, and/or preferential programs such as but not limited to small and medium enterprises. d. Mandatory registration in a Supplier List shall not be used to assess bidders’ qualifications. A foreign bidder shall not be required to register as a condition for submitting a bid and if recommended for contract award shall be given a reasonable opportunity to register with the reasonable cooperation of the Recipient, prior to contract signing. Invitations to bids shall be advertised in at least one newspaper of national circulation or the official gazette or on a widely used website or electronic portal with free national and international access. e. Bidders shall be given a minimum of thirty (30) days to submit bids from the date of availability of the bidding documents. f. All bidding for goods and works shall be carried out through a one-envelope procedure. g. Evaluation of bids shall be made in strict adherence to the evaluation criteria specified in the bidding documents. Evaluation criteria other than price shall be quantified in monetary terms. Merit points shall not be used, and no minimum point or percentage value shall be assigned to the significance of price, in bid evaluation. h. The results of evaluation and award of contract shall be made public. All bids shall not be rejected and the procurement process shall not be cancelled, a failure of bidding declared, or new bids shall not be solicited, without the Bank’s prior written concurrence. No bids shall be rejected on the basis of comparison with the cost estimates without the Bank's prior written concurrence i. In accordance with para.1.16(e) of the Procurement Guidelines, each bidding document and contract financed out of the proceeds of the Financing shall provide that: (1) the bidders , suppliers, contractors and subcontractors, agents, personnel, consultants, service providers, shall permit the Association, at its request, to inspect all accounts, records and comments relating to the bid submission and performance of the contract, and to have them audited by auditors appointed by the Association; and (2) acts intended to materially impede the exercise of the Bank’s audit and inspection rights constitutes an obstructive practice as defined in the para. 1.16 a (v) of the Procurement Guidelines. 74. Standard Bidding Documents for NCB: The GoE’s Federal Public Procurement and Property Administration Agency’s (FPPA) newly issued Standard Bidding Documents (SBD) will be revised to take into account the above exceptions and the revised documents will be 71 agreed with the Bank. The project’s procurement manual will include as an annex revised SBDs that will be applicable for the project. As an alternative, the Bank’s standard bidding documents can also be used. 75. Independent Procurement Audits: Independent Procurement Audits will be carried out once a year, and all procurement implementing bodies shall provide all the required documentation and supports to the procurement audit firm representatives. The MoWIE will select the procurement audit firms that will undertake procurement audits for two consecutive years through a Bank prior review process and will reflect the planned selection process in its procurement plan. 76. Procurement Plan: An initial Procurement Plan for MoWIE is prepared. In addition, an initial Procurement Plan that identified procurable items was developed for project implementation which provides the basis for the project procurement activities that will be implemented at regional level. The Procurement Plans will be updated in agreement with the Bank annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. At initial stage the project activities involve consultancy service studies to determine water supply schemes for selected towns and woredas. When these consultancy services are completed, and when towns and Woredas are identified, the goods and works contract requirements will be known realistically and the Procurement Plan will be revised accordingly. 77. The initial procurement plan has identified the following procurement that will be undertaken by MoWIE in additional to selection of Individual Consultants by MoWIE, MoH and MoE. Table A3- 7 Procurements to be undertaken by MoWIE Expected Bid invitation Quantity/nu Estimated Method of Procuri Prior/P Description of or Request for # mber of Amount Procurement ng ost Procurement items Expression of Interest contract/lot in US$ /Selection Entity Review Date Goods Procurement of Vehicles 1 (MoWIE=4,MoH=12 and 30 1,050,000 ICB MoWIE Prior 1-Apr-14 MoE=12) Consultancy Selection and Employment 1 of Independent 1 500,000 QCBS MoWIE Prior 1-Jul-13 Procurement Audit Consultant 78. The initial Procurement Plan has also identified the following procurable items that will be implemented by each regional Water Bureaus. The detail plans will be prepared for Afar, Amhara, B. Gumuz, Dire Dawa, Gambella, Harari, Oromia, Somali, SNNP, and Tigray regions, and the methods, estimates, and review types for contracts will be reflected in the detail plan. Before start of any procurement activities, the regional BoWRs shall compile procurement plans from their respective towns and woredas and submit such procurement plans for the MoWIE 72 which in turn compile procurement plans from all regions and submit for the Bank’s review and approval. Table A3- 8 Procurements to be undertaken by Regions Method of Procuring Prior/Post No Description of Procurement items Procureme Entity Review nt/Selection 1 Urban 1.1 Services Consultancy service for feasibility study 1.1.1 & design , capacity building and construction supervision QCBS RWB Post/Prior27 1.2 Works 1.2.1 Source Development TBD28 RWB/towns TBD 1.2.2 Immediate Service Improvement TBD RWB/towns TBD 1.2.3 Construction of water supply systems TBD RWB/towns TBD Construction of public latrine/communal 1.2.4 latrine with washing facilities NCB RWB/towns Post 1.3 Goods 1.3.1 Supply of Pipes and Fittings TBD RWB/towns TBD 2 Rural 2.1 Services 2.1.1 Employment of WWC QCBS RWB Post 2.1.2 Employment of CFT IC RWB Post Hiring of National/Regional Consultants 2.1.3 for health and education IC RWB Post Conduct ToT training on CLTS-H approach and its Verification guideline 2.1.4 per region IC RWB Post cascade CLTSH training for PHCU and 2.1.5 HEW's IC RWB Post Conduct TOT on water quality monitoring and sanitary survey for 2.1.6 Zonal/urban and Woreda IC RWB Post Introducing Sanitation marketing concept and products to create demand 2.1.7 and avail supply to at scaling Sanitation; IC RWB Post 2.2 Works 2.2.1 Hand dug well with rope pump NCB RWB Post 2.2.2 Hand dug well with Hand Pump NCB RWB Post 2.2.3 Spring on Spot NCB RWB Post 2.2.4 Shallow Well with Hand Pump NCB RWB Post 2.2.5 Shallow Well with Submersible Pump NCB RWB Post 27 The first consultant selection process under each region will be subject to Bank’s prior review. 28 TBD= To be determined 73 Method of Procuring Prior/Post No Description of Procurement items Procureme Entity Review nt/Selection Construction of four seat latrine separate block for male and female at primary school and Health Facility with 2.2.6 urinals and washing facility and shower NCB RWB Post Construction of new Shallow Well with Hand Pump for primary school and 2.2.7 Health Facility NCB RWB Post 2.3 Goods 2.3.1 Rope Pump NCB RWB Post 2.3.2 Hand Pumps NCB RWB Post 2.3.3 Submersible Pump TBD RWB TBD Hand Dug well Equipment and tools 2.3.4 (set) NCB RWB Post Hand Pumps for schools and Health 2.3.5 facility NCB RWB Post Hand Dug well Equipment and tools for 2.3.6 health facility and Schools NCB RWB Post Procurement of office facilities for 2.3.7 health and education NS RWB Post 74 ANNEX 4: OPERATIONAL RISK ASSESSMENT FRAMEWORK (ORAF) Stage: Appraisal Ethiopia: Water Supply, Sanitation and Hygiene Project (P133591) . . Project Stakeholder Risks Stakeholder Risk Rating Moderate Risk Description: Risk Management: All stakeholders including federal and regional The project design has now been based on IDA as a single external financier, using a government bodies, development partners as well as project approach. Continuous dialogue as well as engagement of partners directly or beneficiaries are supportive of the program objectives. through multi-stakeholder forums will be continued during implementation of the However all donors may not be willing to pool their program to work towards a more harmonized approach. Use will be made of the Mid- resources to finance the program under terms acceptable Term Review to accommodate developments in the first half of the project life. to the Bank. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both 30-Jun-2016 Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Substantial Risk Description: Risk Management: Limited capacity of implementing agencies in financial a) Implement the recommendations of the institutional capacity and fiduciary risk management, procurement, contract administration and assessment that includes organizing tailored capacity building interventions; and (b) safeguards, particularly at the decentralized level, and very Provide funding to train implementing agencies staff at local training facilities. high staff turnover. The fiduciary risks associated with the Resp: Status: Stage: Recurrent: Due Date: Frequency: project need to be properly identified and addressed. Both In Progress Both Governance Rating Moderate Risk Description: Risk Management: Based on lessons from WSSP, there was weak sector a) Facilitate dialogue among the WaSH sectors to strengthen the joint planning, integration and coordination, particularly among budgeting, and monitoring of the program; and (b) conduct regular monitoring of sector 75 Education, Health and Water institutions. institutions commitment and adherence to the MOU through the joint technical review and annual Multi-Stakeholders Forum. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both Risk Management: The Bank continues to focus on fostering improved governance, which is the foundation in the new CPS. The Promoting Basic Services Program presents opportunities for citizens to engage more actively in development related decisions as well as to ensure greater transparency and accountability. The Bank continues to look for elements that can help promote more accurate and accessible information that expands the space for citizen engagement and private initiatives. The Bank's financial management and procurement units will make continuous follow- up to ensure adherence to guidelines and procedures of the Bank. Resp: Status: Stage: Recurrent: Due Date: Frequency: Bank In Progress Both Project Risks Design Rating Moderate Risk Description: Risk Management: The quality of the One WaSH National Program (OWNP) The current operation will adopt a project approach based on only the IDA funding, with in terms of resource predictability, costing, financing gap, a view to move towards development of a harmonized sector approach at a later stage, and prioritization, and lack of readiness in terms of on terms mutually agreeable to the Bank and other partners and the Government of enabling environment to implement a sector wide Ethiopia. approach, could affect implementation results and Resp: Status: Stage: Recurrent: Due Date: Frequency: resource allocation by donors. Bank In Progress Preparation Social and Environmental Rating Moderate 76 Risk Description: Risk Management: The Borrower has experience in preparing safeguards The project will support measures that will strengthen the Borrower's capacity to instruments and screening subproject to identify identify and assess potential adverse environmental and social impacts and to implement environmental and social impacts; however its and monitor appropriate mitigation measures. Specifically, the Borrower will designate institutional capacity for the implementation of mitigation qualified and experienced sociologists and environmental officers at the national and measures is limited. The project may affect vulnerable regional levels to be responsible for social and environmental safeguards matters. These nations, nationalities and peoples. The ongoing ICR staff will receive training on Bank safeguards policies. exercise on the closed WSSP has indicated that regular monitoring of adherence to safeguard requirements and The project has triggered OP 4.10 and will incorporate the required mitigation measures proper documentation of mitigation measures are major during design and implementation. An additional Social Assessment was conducted for gaps. the project, and its recommendations will be incorporated in the screening and implementation of the social and environmental safeguards measures. The project will also include reporting on the status of compliance with ESMF, RPF and each Supplemental Social and Environmental Safeguard Instrument, as part of the Project Progress Reports. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both Program and Donor Rating Substantial Risk Description: Risk Management: Inadequate donor cooperation and particularly the slow Risk mitigation measures through the current operation will seek to: process to agree on the modalities to pool resources may (i) Strengthen the existing structure for government donor coordination for the purposes affect the overall move towards a programmatic approach. of policy dialogue, joint annual planning and budgeting, and periodic reviews of sector performance, (ii) facilitate periodic review of working instruments and manuals for enhanced participation of stakeholders. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both Delivery Monitoring and Sustainability Rating Substantial Risk Description: Risk Management: Delays in (i) implementation and roll out of the The project will enable the Bank to continue supporting the roll out of M&E/MIS to M&E/MIS, and (ii) failure to regularly update the National cover the country and assist in the institutionalization of the annual National WaSH 77 WaSH Inventory, may create gaps in the expected flow of inventory (NWI) and data updates. The project will also include a back-up monitoring information for review of sector performance against the and periodic reporting arrangement specifically for capturing results of the IDA- established set of indicators, especially given potential financed activities. challenges associated with managing M&E under a Resp: Status: Stage: Recurrent: Due Date: Frequency: decentralized setting. Both In Progress Both Overall Risk Overall Implementation Risk: Rating Substantial Risk Description: The decentralized implementation environment, involvement of multiple implementing agencies, weak capacity at a lower level, weak sector coordination, and frequent staff turnover will continue to be a challenge for overall implementation and will require adequate attention and support throughout implementation, hence the decision to rate the overall implementation risk as substantial. Capacity building targeted to improve the project planning and management, financial management and procurement as well as monitoring and evaluation are some of the mitigations measures that the project will support to address these implementation risks. 78 ANNEX 5: IMPLEMENTATION SUPPORT PLAN Strategy and Approach for Implementation Support 1. The Implementation Support Plan (ISP) describes how the Bank will support project implementation, with a particular emphasis on provision of needed technical advice to the Borrower and the implementing agencies to facilitate achievement of the PDO, timely implementation of the risk mitigation measures identified in the ORAF, and meeting the Bank’s fiduciary obligations. In the design of the ISP, consideration has been given to the risks identified in the ORAF and the particular characteristics of the sector environment in Ethiopia such as: limited capacity of implementing agencies in financial management, procurement, contract administration, and safeguards, particularly at the decentralized level, exacerbated by very high staff turnover. 2. Additionally, the ISP reflects the similarity of project activities and implementation modalities under the recently closed WSSP (P076735), mainly: (i) Rural Water Supply and Sanitation; (ii) Urban Water Supply and Sanitation, and; (iii) Project Management Monitoring and Evaluation. The experience gained in administering a WaSH Multi-Donor Trust Fund, working with three implementing agencies at the national level and in each of the nine regions and more that 224 districts was taken into consideration in preparing the ISP. 3. Therefore the approach to implementation support will include: (a) A strong team for support missions, providing professional expertise and advice in all technical areas for implementing agencies at all levels. While the Government of Ethiopia and its implementing agencies remain responsible for project implementation, responsibility for resolving challenges constraining achievement of the PDO will be shared by all stakeholders, including GoE and the Bank. The Bank will need to conduct two or three implementation support missions per year. (b) The Bank team has necessarily been multi-sectoral for project preparation, including team members from AFTOS, AFTPE, AFTCS, AFTN, TWIF, AFTU1, AFCE3, LEGAM. It will be critical to continue this multi-sectoral collaboration in the implementation support phase, including formalizing cross-support commitments. (c) In addition to the implementation support missions, a Mid-Term Review will be carried out within 24 months of project implementation to assess and respond to implementation challenges. (d) Missions and reviews will be complemented by assessments that could include the following areas: financial management, procurement, monitoring and evaluation, safeguards, and technical. Implementation Support Plan 4. A core technical team will be established in the country to provide hands-on support to implementing agencies and to liaise with development partners including a Task Team Leader (TTL) based in the country and Co-TTL based in Washington, DC providing the much needed linkage with Bank Headquarters. Moreover, the Bank’s implementation support team will leverage the presence in the Country Office and region of procurement, financial management, environmental and monitoring and evaluation specialists, all of whom have had significant experience in providing support to a programmatic approach. An experienced team member who is currently a TTL for one of the major Sector Wide Approach (SWAPs) in Tanzania will 79 continue to support the team. Specifically, the following technical support and due diligence will be required by the project:  General Resource Inputs: The World Bank will devote about 40 staff weeks per year and a total of about 200 staff weeks through FY19 to help the Government implement the project and supervise progress.  Supervision missions: Twice yearly formal implementation support missions will be carried out, however ongoing support and dialogue will be maintained throughout to monitor progress and address pertinent issues.  Ongoing dialogue: Regular dialogue, on at least a weekly basis, will be maintained through direct contact, audio-and/or video-conferences between the Bank team and the GoE officials to assure regular follow-up to agreed actions during project implementation.  Procurement Support: The procurement specialist will play a central role in supporting the federal, regional, and local government implementing entities in implementation of sound procurement practices, in accordance with the Bank’s fiduciary requirements, with back up from regional procurement if required.  Safeguards Support: Bank Safeguards staff will provide needed support with respect to environmental and social safeguards as needed. They will conduct staffed missions to project areas at least once a year, and will remain available to support the Government as needed on safeguards aspects.  Monitoring and Evaluation: The Bank will support the GoE in establishment of sound M&E arrangements. The initial project implementation phase will need support on confirmation of baselines for M&E purposes. A Bank M&E Specialist will specifically be included in the project launch and initial missions until the Bank is satisfied that sound M&E practices are in place, following which ongoing M&E support can be provided from Headquarters.  Mid-Term review: The MTR mission will require participation of the entire spectrum of specialists having participated to appraisal. The ISP will be reviewed at least once a year to ensure that it continues to meet the implementation support needs of the project. TableA5-1 Focus of Implementation Support Time Focus Skills Needed Resource Estimate First Component 1:Rural Water Supply, Core technical expertise on: US$ twelve Sanitation and Hygien Water supply and sanitation, months planning and management, Prepare/update the Woreda WaSH plan, community facilitation, hygiene identify priority activities, prepare action and sanitation, contract plan and procurement plans, prepare and management and administration. process procurement activities (works, 80 Time Focus Skills Needed Resource Estimate goods and service contracts), administer contracts, settle and report establishing fiduciary systems (bank accounts, reporting, accounting, monitoring, auditing). Component 2: Urban Water Supply, Sanitation and Hygien Prepare/update study and design documents for urban water supply and sanitation systems, prepare ToR and engage consultants to provide support for cities/towns strengthen the capacity of participating water boards/committees. Component 3: Project Management Monitoring and Evaluation Prepare capacity building activities for the implementing agencies at the national, regional and woredas and town level, strengthen the MoWIE Project Management Monitoring and Evaluation Unit in each implementing agency, strengthen the national WaSH coordination structure at all levels, support the results monitoring. Ongoing  Project Management Monitoring and Core technical expertise on: US$ Evaluation Water supply and sanitation,  Fiduciary (including project and entity program planning and audits) management, contract  Safeguards management and administration,  Monitoring and evaluation financial management, procurement and environmental and social safeguards. 81 Table A5-2 Skills Mix Required Skills Needed Number of Comments Number of Trips Staff Weeks Task Team Leader/Co-TTL 16 TTL based in Addis 2-3 full Ababa and Co-TTL based implementation in Washington support missions Lead Water and Sanitation 2 Based in the region annually, along Specialist with need-based A Senior Water and Sanitation 6 Based in the country backstopping Specialist and Water and Support in Sanitation Specialist specific areas. An Operations Officer 10 Based in the country Senior Social Development 4 Based in the country Specialist Senior Procurement Specialist 4 Based in the country Senior Financial Management 4 Based in the country Specialist Senior Environmental 4 Based in the country Safeguards Specialist Governance specialist 2 As needed from the region or Washington M&E Specialist 2 Periodical input based from the region or Washington 82 ANNEX 6: SOCIAL DEVELOPMENT ETHIOPIA: WATER SUPPLY, SANITATION AND HYGIENE PROJECT 1. A primary social development focus of this project and an important change from the design of WSSP is greater recognition of equity and social inclusion of vulnerable and underserved groups. The project design aims to ensure that the voices of groups traditionally underserved by location, gender, income, age, religion and class are fully heard and that their interests are reflected in all project activities. The design ensures that vulnerability is addressed in subproject targeting, and that elite capture is prevented. The aim is to ensure that the subproject priorities and procedures reflect the principles of social inclusion, particularly of vulnerable subgroups. This outcome will be made sustainable beyond the life of the project through the development of government capacity in the areas of planning, social mobilization, and conflict resolution, and sustainable water supply management. The primary social development outcome is better provision of water and sanitation services in underserved areas and recognizing the need to involve underserved populations in the decision making process. The consultative participatory process will be an important means through which services are delivered. 2. In relation to social safeguards policies, the project triggered OP4.12 on Involuntary Resettlement and OP 4.10. On OP 4.12, at project appraisal, decisions have not been made on specific location and infrastructure transactions to be supported under the project. In view of this, a Resettlement Policy Framework (RPF) was prepared and disclosed. The RPF is a statement of the policy, principles, institutional arrangements and procedures that the client will follow in each civil works package involving resettlement or any subproject activities which displaces people from land or productive resources, and which results in their relocation, the loss of shelter, the loss of assets or access to assets important to production, the loss of income sources or means of livelihood, or the loss of access to locations that provide higher incomes or lower expenditures to businesses or persons. The Resettlement Policy Framework will guide and govern civil works packages that are agreed for funding support, and will be used to prepare project-specific Resettlement Action Plans (RAPs) for each package where the displacement (physical or economic) will take place. The RPF has been disclosed publicly in Ethiopia and at the World Bank’s Info shop. 3. OP 4.10: Facilitating equity, social inclusion and enhancement of water supply and sanitation services to underserved groups in culturally appropriate manner is the key social concern of the project. Based on the screening conducted by the World Bank and reinforced by the constitution of Ethiopia, which indicate that the vast majority of the target population identify themselves as having the characteristics defined under OP 4.10, the project has triggered the policy. An enhanced social assessment (SA) was therefore conducted to complement the RPF and to identify social issues. Key stakeholders were consulted in the woredas, kebeles and communities, including identified vulnerable and underserved groups (meeting the OP 4.10 criteria) to seek their broad support for the project and emphasize the importance of WaSH services to themselves and their families. 4. Social Assessment (SA): A social assessment has been carried out during project preparation to identify the direct and indirect beneficiaries or groups that may be excluded from the project and adversely affected as a result, due to poverty, gender differentials, power dynamics, spatial disparities, and other underserved groups. 83 5. The findings of the SA highlighted the main social challenges, and the key factors affecting people’s abilities to access WaSH services. Specifically, these include: (i) gender disparities, exacerbated by low participation in planning, implementation and post-implementation maintenance of WaSH facilities, especially of women in historically underserved areas; (ii) weak capacity of the implementing entity; (iii) people living in rural areas, in urban slums and informal settlements, in the emerging regions and pastoralists (particularly in Afar and Somali); (iv) pastoralist women and men, who have left pastoralism as a way of life and are living on the periphery of towns, often in informal areas, are least likely to access and use safe, secure WaSH services of adequate quality or other avenues of support and information; (v) data collection and monitoring systems for the WaSH sector have yet to consider the full range of vertical differences within underserved populations and vulnerable groups; and (vi) universal coverage may best be achieved by an equity approach, explicitly targeting the hard-to-reach within under- served regions and populations. 6. The project has incorporated the findings and lessons learned into the design features of this project for better implementation performance and in managing the social impacts. Specifically, the implementing agencies will set their own verifiable indicators to assess the degree of key stakeholder participation during implementation, as well as engage consumer representatives to participate in all monitoring and evaluation, field visits and discussions with government officials, and during IDA missions. The project’s social impact will be monitored through: (i) annual reviews of the project’s social impact, conducted by the regional offices using a methodology to be developed during the first year of implementation; (ii) a survey of at least 1,000 stakeholders at the MTR to understand perceptions of the project’s successes and weaknesses; and (iii) the project will carry out another stakeholder survey at project completion. Monitoring of specific service delivery targets will include a participatory feedback system such as questionnaires, radio phone-in programs, meetings to gather feedback on project results. The implementing agencies will set their own verifiable indicators to assess the degree of participation of the key stakeholders during all phases of project implementation. 7. Public Participation and Consultations: The public consultation process for the project began during the early stages of project preparation and was further enriched through interactions and consultation with the relevant stakeholders in the course of the preparation of safeguards documents. The consultations and participation afforded project-affected people (PAPs) and the general public created opportunities to contribute to both the design and implementation of the project activities and to reduce the likelihood of conflicts. The consultation process provided information to affected communities and stakeholders while minimizing the potential implementation risks and challenges of the project for communities. In specific terms, the public consultation sought to achieve the following:  Inform stakeholders of the project activities and pprovide adequate information on the project, its components and its activities with affected communities.  Obtain prior and informed broad community cooperation and support for the project  Obtain vital information about the needs and priorities of affected communities.  Inform the PAPs and the communities about various options of safeguards instruments, including resettlement and compensation, project grievance and complaint mechanisms. 8. The consultation process ensured that all those identified as stakeholders, especially the project-affected persons and community leaders, were consulted. Several meetings were held with other relevant stakeholders at kebeles and woredas, with regional government secretariat 84 and community heads. The meeting deliberated on the project related information, including potential project challenges and the support needed from communities and other stakeholders to ensure effective project implementation. Stakeholders and affected persons expressed willingness to support the project, and the highlights of the meetings are summarized as follows:  Community members are pleased and commend the Government and the World Bank for the WaSHP that includes underserved groups and noted that the WSSP benefited people residing in nearby the town, in areas with accessibility (with overall better infrastructure), with adequate financial capacity to pay for the services and without physical disabilities (mobility challenges). In other words, people living in remote areas or areas with poor road infrastructure, experiencing great financial difficulties and those living with disabilities are reported not to have benefited from the WSSP. Communities living in Lumtak kebele of Abobo (Gambella) can be taken as the best example here. This kebele is the most remote and inaccessible compared to others and has not benefited from the WSSP. Sometimes communities that have migrated from other places, now residing in a pocket area, are left behind in accessing safe water and sanitation services. Leku communities, who migrated from Wolayta 60 years ago, can be cited as an example; this community lives in the outskirts of the town and lacks access to safe water due to limited distribution.  The community members also indicated that physical presence of the facilities around a given community should not be regarded as an indicator that everyone in the community has benefited from the services. In order for everyone to benefit from the project regardless of their conditions, there should be some mechanism to ensure whether the services provided to them are affordable and accessible. Poor women and widows in almost all the study areas reported that they are not benefiting from the project because they cannot afford to pay for the services despite the fact that the service is present physically around them while relatively well-to do households are largely benefiting. Again the physical condition of individuals also affects the level of benefits they can realize. WaSH projects require that the standard design be agree upon before implementation, and as a result, projects lack inclusive design, preventing people with disabilities and elders, who have special needs, from benefiting from the projects. In some areas (e.g. Abobo) poor women and widows facing financial crisis are exempted from paying for the services. But, in other areas there are no such practices to accommodate the needs of poor women and widows, which means that they have not benefited from WSSP mainly because they cannot afford to pay for the services. As a result those segments of the communities who cannot afford to pay for the services are forced to use water from unprotected sources which are causes for diseases that directly affect their productivity. 9. The following are suggested actions to improve the project:  All stakeholders including the poor, vulnerable and underserved communities and local service providers suggested that everyone everywhere regardless of their social status, ethnic background, lifestyle, economic status, geographical locations, cultural and traditions should be should be engaged “ or “invited to the table, starting with the planning.  The WWTs, WaSHCOs, men’s groups, poor/elderly women groups, and men with disabilities suggested that there should be clear mechanisms for user communities of 85 different social groups to participate in the planning and implementation of WaSHP so that they can have their voices sufficiently assimilated in the project and ensure that everyone can benefit from the outputs.  Girls and adult women’s groups in Somali suggested that women should be sufficiently represented in the planning and designing of WaSHP. Poor women’s groups in Gambella also suggested the importance of participating women in all stages of WaSHP planning and implementation.  Men and women with disabilities, WaSHCOs and the Woreda WaSH Team suggested that standard designs should be considered as one component in the implementation of WaSHP and this should be part of the annual planning at regional and woreda levels. Disabled women’s groups in Somali suggested that WaSHP should provide inclusive services to ensure that physically challenged women will not face double discrimination.  All Focus Group Discussions (FGDs) are concerned about the sustainability of WaSH facilities and suggested that implementation of WaSHP should begin with the end objective in mind so that communities can derive lasting benefit from the project. WaSHCOs suggested that it is essential to strengthen the capacities of community WaSH management systems and operation and maintenance systems to ensure sustainability of WaSH services (both household and institutional). 10. All these suggestions, including the detailed SA findings, have been taken into account in designing this project and the project has shared these social concerns with representatives of woreda, Kebele, and Federal agencies. 11. Consultation related to Safeguards Issues: Communities have also consulted on project components, implementation arrangements and safeguards instruments, in accordance with the Bank’s operational policies. Meetings with community members and civil society organizations, including vulnerable and historically underserved groups (meeting the OP 4.10 criteria), were undertaken to seek their broad support for the project and to share key project design principles and features. These consultations were also aimed at listening to all key stakeholder groups, seeking their feedback and consensus and incorporating comments, suggestions and remedial proposals into the various safeguards instruments. The result indicates that overall, project- affected persons were pleased that water supply will be extended to their woreda, but for poorer people, women and men, the high cost of supply and the poor functionality of some of the water points meant they did not perceive any tangible benefits from the program. The poor reported the most difficulty in accessing safe water or useable latrines, and have weak voice in decision- making, planning and post-implementation maintenance of WaSH services. 12. Grievance Redress Mechanism: The project recognizes that complaint mechanisms can be a powerful tool if project-affected persons and community members are aware of them and have equal and easy access to them. Therefore, the project has set up a good complaint handling process that is easily understood, cost effective and supported at all levels of project institutional arrangement. The project staff will be trained on culturally appropriate capacity building and trained to enable them to resolve complaints effectively. Further, the project will develop a project complaints registry to document the nature of complaints. For land acquisition, the implementation agencies will establish a step-by-step approach to grievance redress, starting with a register of resettlement/compensation-related grievances and disputes. Information about the register – its existence, location, conditions of access, etc. – will be widely disseminated 86 within the interested area of the town as part of the subprogram consultation in general. Any grievance that arises from the compensation/resettlement action plan will be filed at first instance to the subprogram implementation agency and registered by the agency for further action using the above mentioned registry/logbook. The preferred option for resolution is the amicable settlement through the Mediation Committee, comprised of members of the implementation agency, a local NGO (chairperson), and local representatives of the program-affected persons (2 to 5 people) from the interested area. If the conflict or grievance is not resolved, the PAP will have an option of appealing to local/woreda or regional court. 13. Benefit Sharing Mechanism (BSM): The BSM is operationalized through local or community participation to realize equity and social inclusiveness in the provision of water and sanitation services. This local participation and consultative process will lead to greater flexibility during project implementation and will be community driven. The project is designed to incorporate the local social context, including differences in power and social class, and to share project information with community members to enable them make informed decisions on the nature of their participation. The project has developed a clear regional and woreda level governance structure to facilitate water resources management both at federal and at local levels. Communities will be empowered to address the underlying social drivers of poor water supply and will be provided with tools for monitoring, and evaluation. 14. Based on the stakeholder consultations and the identified implementation risks and challenges associated with project components, the social assessment made recommendations to address the specific equity and inclusion gaps, included in the action plan below 87 Table A6- 1 Potential Implementation Risks and Challenges identified by the Social Assessment and Proposed Action Plan WaSHP Potential Risks and Challenges Mitigation Actions Cross-cutting Issues  Affordability of WaSH services by poor,  Establish mechanisms for increasing affordability of WaSH services for the poorest vulnerable and under-served populations and most vulnerable groups. A number of interventions will need to be considered are not fully addressed in the project including: Fee-waivers in both rural and urban areas, using community-based design, and risks excluding these groups targeting to establish eligibility for fee-waivers; assess the potential of using water from coverage as well as sustained fees to cross subsidize sanitation and pilot the approach in selected low-income access to services. underserved areas; establish policy and guidelines with regard to who will receive  Processes and strategies for developing subsidies and cost waivers post-implementation; introduce targeted information understanding, awareness and respect, as dissemination on standard WaSH costs, social tariffs and any other introduced cost well as building capacities to address the waiver mechanisms to the poorest and vulnerable households, and commission diverse needs of underserved populations studies on life cycle costs and affordability of rural, peri-urban and urban water and and vulnerable groups, are only partially sanitation services for the poorest and vulnerable households and individuals. addressed in the design.  Develop an overarching policy and implementation framework to guide equitable  Steps and mechanisms for harmonizing access to WaSH services provision for underserved populations and vulnerable and aligning partners’ cost-effective and groups, by the end of Phase 1. The equity principle underpinning the policies and good practice approaches in relation to strategies across the different implementation ministries involved in OWNP equitable and inclusive community-based suggests the need to harmonize/align policies and procedures in relation to WaSH provision are not addressed in the addressing social disparities across Ethiopia and within underserved populations. design. There is also a need for overarching and explicit guidelines across the whole sector.  Staff/technical support requirements for The flexibility of the design of OWNP and the acknowledgement that there may be social safeguarding and/or social aspects changes in policies, strategies and targets post-2015 allows for these adjustments. of WaSH provision only partially  During Phase 1 undertake Equity and Inclusion mapping and review of the addressed in design. systems, mechanisms and practices of the different implementation modalities The needs and voice of disabled people (WMP, CMP and NGO) in relation to: a) equitable and inclusive access of are largely invisible in practice and in underserved populations and vulnerable groups; and b) social accountability/GRM. design. The aim of the assessment is to identify good practice with the potential of going to scale of: a) cost-effective mechanisms, processes and strategies for provisioning and sustaining WaSH services to underserved and vulnerable groups; and b) processes and mechanisms that support equitable inclusion of under-served populations and vulnerable groups in decision-making, planning and implementation of WaSH activities and GRM/social accountability mechanisms.  Strengthen actions to ensure that people with disabilities benefit from WaSH services under OWNP, including, standardized designs for accessible latrines, training for officials, WaSHCOs, etc., on disability issues and WaSH needs; low- cost adaptations of WaSH facilities; enhanced consultation with people with disabilities and WaSH job opportunities for people with disabilities.  Incorporate a full social assessment, including analysis of trends towards the social sustainability of WSS interventions, into the planned comprehensive MTR. 88 WaSHP Potential Risks and Challenges Mitigation Actions Component 1: Rural  The mass mobilization strategy, a key Rural WaSH WaSH activity for WMP, is not aligned with  Review and revise the mass mobilization strategy. The mass mobilization strategy CLTSH and does not have explicit (2008) needs to be brought up to date and guidelines included which address how guidelines for promoting women’s to reach and include underserved populations and vulnerable groups, especially leadership or reaching and engaging women, in the planning, provision and management of WaSH services. hard-to-reach vulnerable groups.  The assessment of the post-construction management and technical support to  There is a risk that existing heavy WaSHCOs should include explicit social development technical support for: workloads of HEWs, particularly in strengthening WaSHCOs’ capacities to promote women’s leadership and that of under-served pastoralist regions, will representatives from vulnerable groups. The impacts of this type of technical undermine efforts at support on the sustainability of WSSP interventions can be tracked through the Key alignment/harmonization of WS and Performance Indicators (KPIs) (see below and Annex 4). The equity and inclusion sanitation/hygiene activities. review, proposed under this SA, will also support WaSHP identify appropriate and  Low participation of women and poor inclusive processes and systems for the WaSHCOs. people in general in WaSHCOs affects Pastoralist WaSH design, implementation and O&M of  The process for expanding WaSH services to pastoralist areas is already planned WaSH facilities, pastoralists also under- and is flexible, demand-led and responsive to different contexts. In developing the represented. pastoralist WaSH strategy, specific attention needs to be given to women and This social assessment did not do a full poorer and vulnerable pastoralist individuals and households. The M&E indicators assessment of the social dimensions of developed will need to be disaggregated by age, wealth status and gender and WaSH service provision in Commune aligned with the KPIs suggested in this assessment. Development Program (CDP) areas.  WaSHP will need to assess any risks or opportunities to its delivery from the CDP process and integrate measures as appropriate. Component 2: Urban  Cost-recovery processes which  Build explicit strategies for reaching underserved and vulnerable groups in the WaSH disproportionately affect poorer planned urban strategy and approach to urban sanitation. It is vital that the strategy households negatively risk reducing clearly identifies the underserved and vulnerable groups and tailors implementation water usage and hygiene practices (hand strategies to ensure their access. The strategy will need to be developed in close washing, improved latrines) for poor collaboration with residents from informal communities, including the poorest and people and vulnerable groups most vulnerable women and men. It is expected that access and equity results from  Lack of safe and accessible implementation of the strategy will be tracked through the results framework communal/public toilet blocks in urban (results framework area 4), though this needs to be clarified. and peri-urban areas excludes some  Standardize disabled accessible hardware designs within school and health services vulnerable groups from WaSH, e.g. provision to ensure specific needs of people living with disabilities and HIV/AIDs homeless, elderly. are addressed.  Community demand for woreda- or  Include latrine designs for people with mobility constraints within hardware community-supported WaSH-based WaSH options for production and distribution, within support envisaged for O&M Income Generating Activity (IGA) expanding market supply chains. for poor people, e.g. unemployed young  Introduce menstrual hygiene management practices materials in WSSP institutional people or poor adult women, not information packages. addressed in the OWNP design.  Integrate WaSH within the accountability mechanisms of the education and health 89 WaSHP Potential Risks and Challenges Mitigation Actions  Same participation issues as Component sectors. 1.  Menstrual hygiene management practices and needs are not fully addressed in the design of institutional latrines; Design and guidelines of institutional WaSH provision does not address the needs of all vulnerable groups, especially people living with disabilities and HIV/AIDs. Component 3 Project  Capacity building measures for gender Capacity Building Management mainstreaming may risk not reducing the  Review the social science human resources within the WaSH sector and adjust barriers (low awareness, staff turnover, proposed TA requirements under WaSHP to include social inclusion/impact and lack of good practice models and existing accountability assistance. competences) that regional WT and  It is essential that methods of knowledge/ practice exchange, envisaged under WWTs will face in embedding new WaSHP, such as FLOWs and horizontal learning, explicitly include and budget for knowledge and practice (from training) components focused on gender equality and equity/inclusion knowledge and in the systems and processes for practice. providing WaSH services. This SA endorses the recommendations of the capacity building review (EoD, 2013) to  Capacity building measures risk missing apply the methodology of Horizontal Learning, or peer-to-peer learning, more opportunities to address the range of systematically in order to embed new knowledge and practice in institutional capacities and mechanisms that national, mechanisms and systems. Integrate gender and social inclusion issues into the proposed regional and woreda staff will need, capacity building assessment forms and the subsequent capacity building strategies. ensuring equity and inclusion issues are Annex 4 provides an example of an Equity and Access Capacities Assessment Matrix mainstreamed. which assesses the cross-cutting issues of WaSHP.  Opportunities to enhance the effectiveness of GRM/accountability Monitoring and Evaluation including GRM/Accountable Mechanisms mechanisms not outlined in design.  MIS/Key Performance Indicators (KPIs). The KPIs have been reviewed, as  Gaps in guidelines, systems and required under the ToRs. The suggested amendments, with justification for the processes of WaSHCOs for: a) change, are contained within Annex 3. encouraging the active participation and  The baseline survey and data analysis proposed under results framework area 4, leadership of women and vulnerable needs to be disaggregated by age, gender, wealth status and establish a baseline groups; and b) ensuring the of the WaSH needs of people with disabilities. interests/needs of women and vulnerable  Track progress in expanding access of WaSH services to underserved populations groups are incorporated in the plans and and vulnerable groups through the semi-annual and annual performance reports. implementation.  Strengthen and harmonize GRM/accountability mechanisms, within the  Existing monitoring systems are not implementation framework and M&E indicators by the end of Phase 1. Different sufficiently disaggregated to track accountability mechanisms across the modalities need to be harmonized and 90 WaSHP Potential Risks and Challenges Mitigation Actions coverage in relation to underserved aligned with each other and within government systems across the three populations and vulnerable groups, implementing ministries. which risks distorting financial flows, investments, installation plans and implementation processes. There is a gap in the available data and MIS for tracking usage at household and sub-household levels. There are risks that without usage data, information on coverage and functionality (in relation to who is able to use the facilities), will be inadequate in terms of: a) ensuring coverage to underserved populations and vulnerable groups; and b) adjusting plans and investments to meet gaps in provision over the life of the program. 91 ANNEX 7: ENVIRONMENTAL AND SOCIAL (INCLUDING SAFEGUARDS) ETHIOPIA: WATER SUPPLY, SANITATION AND HYGIENE PROJECT Project Location and Types: The Water Supply and Sanitation Project will be implemented in rural and urban areas across Ethiopia. The environmental and social safeguards issues of the proposed project are associated primarily with the activities of Component 1: Rural Water Supply, Sanitation and Hygiene, and Component 2: Urban Water Supply, Sanitation and Hygiene. Subprojects under these components will vary in magnitude and technical scope from the rural hand-dug well to full urban water supply systems. Environmental Impacts: The project is Category B. Most of the subprojects under Components 1 and 2 will have environmental and social beneficial impacts including improved health because of the reduction in water borne diseases and the associated socio-economic benefits, considerable capacity enhancement at community, district and regional levels, and improved productivity (particularly benefiting females) generated by better availability of water. Some of the activities under Components 1 and 2, such as subprojects on surface water development, can have the following adverse impacts: i) water-borne diseases (e.g. malaria) caused by lack of drainage in the immediate surroundings; and ii) reduced water flow downstream, raising the potential for conflict between upstream and downstream users, and the potential for increased animal concentration in the surroundings of water points, with resulting overgrazing, ecosystem and grazing resources degradation. These adverse environmental impacts will be addressed by Environmental and Social Management Plans (ESMP) to be prepared on the basis of the guidance provided in the Environmental and Social Management Framework (ESMF). Stakeholder Consultation: During the ESMF preparations, stakeholder consultations were carried out with over 200 peoples drawn from governmental and non-governmental organizations from four regional states (two major regions and two emerging and predominantly pastoral regions), namely Oromia, Southern Nations and Nationalities People’s Region (SNNPR), Afar and Somali regions. The stakeholders described that the shortage of safe drinking water is a very critical problem, particularly in the rural parts of their regions. They underlined the beneficial impacts of the WaSH program in providing safe drinking water. However, communities and experts from Oromia, SNNPR and Afar regional states expressed their concern on the natural contamination of the ground water by fluoride. They underscored that fluoride is a very serious issue and is a big challenge for safe drinking water supply in the Rift Valley Region. Key Measures to be taken by the Borrower to Address Safeguards Policy Issues: The Ministry of Water, Irrigation and Energy has updated the ESMF of WSSP using its own experts. The Ministry has already employed Environmental Safeguard Specialists to ensure the effective implementation of the ESMF. Capacity building training on the ESMF and RPF will be given to regional focal persons. Awareness building on the environmental and social impacts of project activities will be organized in regions where the project will be implemented. Mitigation Measures: The ESMF recommended mitigating measures aimed at ensuring that subprojects are executed in an environmentally and socially sound manner. Mitigation measures suggested in the ESMF are geared towards addressing potential environmental and social impacts arising from project activities such as hand dug wells, surface water development and 92 sanitation facilities. The checklist of impact and mitigation measures for typical subprojects, in the ESMF, will serve as a guide to develop location-specific mitigation measures during subproject design and implementation. Capacity for Safeguard Implementation: Training of regional focal points and other stakeholders on issues of environmental and social safeguards is required. The training will largely focus on the processes and procedures of the ESMF. Topics to be covered include screening of subprojects for environmental and social impacts, preparation of Environmental and Social Management Plans, community engagement techniques and monitoring and evaluation. 93 ANNEX 8: LOCATION MAP 94