PROGRAM IMPLEMENTATION SCHEDULE
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- Jemimah Wilkins
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1 Water Sector Improvement Program (RRP PAL 44031) A. Program Description PROGRAM IMPLEMENTATION SCHEDULE 1. The Program will support reform of the water and sanitation sector, focusing on improving policy and legal frameworks, financial sustainability, and capacity development. The impact of the Program will be sustainable water and sewerage services. The Program outcome will be that the demand for water and sewerage services be met. 2. Outputs from the Program will consist of 4 components as outlined below: (i) Component 1: Policy and Legal Framework. The policy and legal framework to enable the provision of sustainable and efficient water and sewerage services by an independent, government-owned corporate entity Palau Water and Sewer Corporation (PWSC); (ii) Component 2: Establishment of PWSC. It is anticipated that PWSC will commence delivering water and sewerage services 18 months after the approval of the PWSC Act (expected by 30 September 2010). During the 18-month transition period, the following will be undertaken: (i) preparation of an organizational structure for PWSC, (ii) transfer of water and sewerage assets from the Government to PWSC, (iii) development of an asset management plan covering planned investments and operations and maintenance, (iv) transfer of staff through the reduction in force provision of the Public Administration Act, (v) agreement on staff conditions of service and human resource management plan, (vi) adoption of financial management arrangements and systems, (vii) development of new billing and collection systems, (viii) development of guidelines and technical standards, and (ix) development of an institutional development plan. Capacity to effectively operate and manage PWSC will be undertaken including: (i) mentoring of management personnel, (ii) strengthening administration capacity, and (iii) technical skills development of the water and sewerage operations teams. A program of works to improve the operational efficiency of the Koror-Airai water supply system will also be implemented including: (i) universal metering of all water supply customers in Koror and Airai, (ii) disconnection of all illegal connections, (iii) installation of bulk supply and zone metering within the existing network and at all storage tanks, and (iv) reducing system losses through the preparation and implementation of a leak detection and repair program. (iii) Component 3: Tariff Reform. The Program supports: (i) progressive increase in tariffs to full cost recovery, and (ii) budget support to cover the difference between tariff revenue and actual costs during the transition. The first tariff increase has been approved as part of the FY2011 Budget Act. The second tariff increase will be regulated by the Minister of Finance in late 2011 to become effective in February The third and fourth tariff increases, being recommended to achieve full cost recovery for PWSC, will be enacted by the PWSC Board in subsequent years. To achieve full cost recovery over 4 years, residential water tariffs will be increased from $0.85/1,000 to $1.30/1,000 gallons for consumption up to 5,000
2 2 gallons per month (53% increase). Sewerage tariffs will also be charged to residential customers commencing at $0.30/1,000 gallons. Tariffs for high residential water users consuming more than 5,000 gallons per month and non-residential users will increase more steeply to $3.36/1,000 gallons. These rates will encourage prudent consumption and facilitate maintaining a sustainable supply of treated water. Commercial sewerage tariffs will be introduced at $1.70/1,000 gallons and increase steadily over the 4 years. (iv) Component 4: Community Awareness. Under the Program, the Government has undertaken a public advocacy program with politicians, civil society, and community groups on the government s policy, its importance to Palau s future, and the impact on the people. In doing so, they have sought support for the creation of PWSC, and for tariff reform, reducing the risk of waning support over time. The PWSC will conduct an awareness campaign on the importance of water conservation and behavior change to help the community adapt to the new policy arrangements and minimize their impact. The awareness campaign will include support for sanitation, hygiene, water use, and health awareness. B. Implementation Plan 1. Program Readiness Activities 3. The schedule of Program processing milestones is presented in Table 1. Table 1: Program Processing Milestones Activity Target Date Responsible Agency Establish project implementation 15 September 2010 GOP - arrangements ADB Board approval 9 November 2010 ADB Loan signing 30 November 2010 ADB, GOP Government legal opinion provided 15 December 2010 GOP - Attorney General Loan effectiveness / Release of first tranche 15 January 2011 ADB 2. Overall Project Implementation Plan 4. Preparation and implementation of the Program began with the letter of request by the Government in October 2009 and subsequent ADB mission in December Implementation will finish after full cost recovery of the PWSC has been achieved in October All disbursements and policy actions in the Policy Matrix will be implemented by April The PIU and PWSC will continue to implement the reforms after release of the second tranche. ADB will continue joint reviews until December Restructuring of Palau s public water and sanitation services commenced in September 2010 and is expected to be completed by 31 May The strategy to re-structure the sector and create an operationally efficient and financially viable sector is outlined below. (i) Foundation tasks this segment covers the key enabling actions necessary to start the program. Key tasks include: enacting the enabling legislation, designing the technical assistance support program and appointing the consultants, incorporating PWSC, and appointing the Board members. These tasks are scheduled from September 2010 to February 2011.
3 3 (ii) (iii) Establishing the PWSC this segment covers all tasks necessary to create PWSC and bring it to the point where it can become fully operational and takeover full responsibility for sector operations. Key tasks include: creating the billing system for sewerage charges, appointing senior management, creating the finance and the HR functions, and making the asset and staff transfers. These tasks are primarily scheduled to commence in February 2011 and completed in September Improving commercial and operational efficiency this segment covers the tasks aimed at creating the efficiency improvements needed, initially to establish an operationally and financially viable sector, and also to provide a solid basis for ensuring long term sustainability of the change. Key tasks include: design and implementation of a leak detection/non-revenue water reduction program, design and implementation of the reticulation network refurbishment program, and design and implementation of the zonal metering and domestic metering programs. The planning tasks are scheduled to begin in October 2010 and implementation is scheduled to run from the beginning of 2011 and continue throughout the year. 6. Key milestone dates for the reform of Palau s public water and sanitation services are presented in Table 2. Table 2: Water and Sanitation Reform Milestones Milestone Target date Water and Sanitation Bill enacted 30 September 2010 Technical Assistance Consultants appointed 20 December 2010 PWSC Board members appointed 31 January 2011 PWSC incorporated 4 February 2011 PWSC Management in place 30 June 2011 PWSC Finance function fully operative 31 August 2011 PWSC asset transfer and staff transfer agreed (effected 30/09/2011) 1 July 2011 PWSC takes over operational responsibility for the sector 1 October 2011 PWSC Opening balance sheet constructed. 31 October 2011 Zonal metering and domestic metering programs completed 1 December 2011 Pipe replacement/repair program completed 1 December A Gantt chart showing the scheduling of Program activities during the transitional phase as presented in Figure 1.
4 4 Figure 1: Program Implementation Schedule Transition Phase
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7 7 C. Program Management Arrangements 1. Project Implementation Organizations Roles and Responsibilities 8. The Ministry of Finance (MOF) will be the Executing Agency (EA) and will be responsible for the overall implementation of the program including compliance with all policy actions, administration, disbursements, and maintenance of records. A Program Implementation Unit (PIU) will be established within MOF to support the Ministry in its role and provide ongoing support to the Implementing Agencies (IAs). The PIU will include: (i) a utility manager with international experience and expertise in either water supply or sanitation sector operations; (ii) a water supply or sanitation operations manager, depending on the experience of the utility manager, with international experience; (iii) a financial management specialist; and (iv) secretarial support. The PIU may engage additional short term consultants as required during Program implementation. 9. Implementing Agencies will be: (i) MOF, (ii) MPIIC, and (iii) the PWSC, once it is established and in operation. Each of the IAs will be responsible for meeting the policy actions, or for the Program activities under their respective Ministries and Authority. 10. A Program Steering Committee (PSC) will be formed and will be chaired by the MOF. The members will include the Minister for MPIIC, the Financial Adviser to the Vice-President, the Legal Adviser to the President, and the General Manager of the PPIC. The Government, with ADB endorsement, may change the membership of the PSC as deemed appropriate during Program implementation. The PSC shall be responsible for overall direction, guidance, monitoring, and providing an oversight role for the Program. The PSC will meet at least on a quarterly basis to discuss the progress of the Program. The PIU will act as the Secretariat of the PSC. The roles and key responsibilities of the Program agencies are presented in Table 3. Table 3: Program Agencies and Roles and Key Responsibilities Program implementation organizations Ministry of Finance (Executing Agency) Management Roles and Responsibilities Overall implementation, financial management and budget support required under the Program and implementation of Program Components 1 and 3. Provision of day-to-day management of the Program and support to the implementing agencies. Project Implementation Unit (within the Ministry of Finance) Project Steering Committee Provision of overall direction, guidance, and monitoring of the Program. Ministry of Public Implementation of Program Components 2 and 4 until PWSC Infrastructure, Industry and commences operation. Commerce Implementation of Program Components 2 and 4 after PWSC commences operation. Palau Water and Sewer Corporation Asian Development Bank Monitoring of status of tranche release triggers. Release of tranches. Compliance monitoring of Program assurances.
8 8 2. Key Persons Involved in Implementation Executing Agency Ministry of Finance ADB Pacific Department Mission Leader Officer's Name: Hon. Kerei Mariur Position: Vice-President, Republic of Palau Telephone: Office Address: 3rd Floor, Executive Building, Ngerulmud, Palau Staff Name: Mr. Sungsup Ra Position: Director, Pacific Strategy and Special Operations Telephone No address: sungsupra@adb.org Staff Name: Anthony Gill Position: Country Specialist Telephone No.: address: agill@adb.org 3. Program Organization Structure 11. Figure 2 shows the reporting lines necessary for the implementation of the Program. Figure 2: Program Organizational Structure
9 9 D. Financial Management 1. Program Period and Tranching 12. The implementation period for the program is from December 2010 (loan effectiveness) to December All disbursements and policy actions in the Policy Matrix under the Program will be implemented within this period. The Program loan will be released in two tranches to meet the expected costs of policy reforms (Table 4). Table 4: Tranches for the Program Loan ($ million) Tranche OCR ADF Total Amount Release Date First Upon loan effectiveness with a target date December 2010 Second upon satisfactory compliance with all second Tranche policy conditions with an target date of April 2012 Total Source: Asian Development Bank estimates. 2. Financial Management Assessment 13. Palau has made solid progress in improving public financial management since achieving internal self-governance in 1981, particularly in government financial accounting and reporting. The Office of the Public Auditor and Office of the Special Prosecutor perform their mandate effectively. 1 Public finance legislative frameworks are judged to be reasonably sound. However, the quality of budget preparation and analysis still requires improvement. Likewise, cash planning and performance management systems inhibit the ability to plan and manage expenditure. 14. Recognizing these issues, the Government sought ADB assistance through TA 7421: Technical Assistance for Palau for Implementing a Medium-Term Budget Framework to strengthen budget preparation and management. Linked with this work, Pacific Financial Technical Assistance Centre is working with the MOF to strengthen cash management. 3. Disbursement 15. The loan proceeds will be used to finance the full foreign exchange costs excluding local duties and taxes of items produced and procured in ADB developing member countries, excluding ineligible items and imports financed by other bilateral and multilateral sources (see Appendix 14). In accordance with the provisions of ADB s Simplification of Disbursement Procedures and Related Requirements for Program Loans (1998), no supporting import documentation will be required if, during each year that loan proceeds are expected to be disbursed, the value of the Republic of Palau s total imports minus imports from nonmember countries, ineligible imports, and imports financed under other official development assistance is equal to, or greater than, the amount of the loan expected to be disbursed during such year. The Government will certify its compliance with this formula with each withdrawal request. Otherwise, import documentation under existing procedures will be required. ADB reserves the 1 ADB conducted a governance assessment of Palau utilizing the GACAP I methodology in preparation for the Country Partnership Strategy
10 10 right to audit the use of the loan proceeds and verify the accuracy of the Government's certification. 4. Accounting and Auditing 16. The Government will maintain records of account for the Program. To ensure proper fund management, ADB retains the right to audit the use of program loan proceeds. The accounts will be managed, operated, and liquidated in accordance with terms satisfactory to ADB. The revenue generated from the proceeds of the loan will be used to finance adjustment costs under the Program, including, but not limited to (i) developing a legal and policy framework for the water sector, (ii) establishing the PWSC, (iii) ensuring the sector s and PWSC s financial sustainability, and (iv) promoting water conservation. E. Performance Monitoring, Evaluation, Reporting and Communication 1. Program Design and Monitoring Framework Design Summary Impact Sustainable water and sewerage services Performance Targets and Indicators with Baselines Government transfers to the water sector are eliminated by 2015 (2010 baseline: $2.4 million per annum). Data Sources and Reporting Mechanisms Annual budget submissions and PWSC annual reports Assumptions and Risks Assumption The government and community continue to support water sector reform. PWSC annual revenue exceeds costs by 2014 (2010 baseline: $2.4 million loss) PWSC annual report Risk Political interference in water and sanitation sector management. Outcome Demand for water and sewerage services is met. Nonrevenue water is less than 25% by FY2015 (2010 baseline: 43%) Projected demand for water in FY2015 of 3.0 million gallons per day is within supply capacity (2010 baseline: demand is 3.8 million gallons per day) The continuity of water supply to users increases to 99.9%+ by 2014 (2010 baseline: 95%) PWSC production and management reports PWSC production and management reports PWSC production and sales data in annual reports Assumptions Airai accepts metered water supply services. Palauans accept user pays principle for service delivery. The government maintains subsidies to the sector until Households reduce water consumption by 30% by FY2015 (2009 baseline: 169 gallons/capita/day) PWSC production and sales data in annual reports The number of uncontrolled sewage overflows is reduced by more than 20% by FY2015 (2010 baseline: 20 uncontrolled overflow events) PWSC production and sales data in annual reports
11 11 Design Summary Performance Targets and Indicators with Baselines Data Sources and Reporting Mechanisms Assumptions and Risks Outputs 1. Legal and policy framework for water sector improvement in place 2. Improved services delivered by an independent PWSC 3. Full cost recovery achieved in the water and sewerage sector Adoption of the National Water Resources Management Plan and the changes to the appropriate legislation by April 2012 (T1C and T2C) 100% of BPW water and sewer operations staff employed at the PWSC by Jan 2012 (T2C) 100% of water and sewer assets registered in PWSC accounts by Jan 2012 (T2C) Staff customer ratio for water and sewerage operations falls to 15:1,000 by FY2015 (2010 baseline: 21:1,000) Planned maintenance budget at least 2% of asset value by FY2015 (2010 baseline: 1.7%) Collections 95% by FY2015 (2009 baseline: 61%) Government budget support to the sector eliminated by 2014/15 (FY2011 baseline: $2.4 million) Tariff for nonresidential water is $3.36/1,000 gallons by FY2015 (2010 baseline: $0.85) Olbiil Era Kelulau (bicameral Congress) records Government and PWSC human resources records Audited statements of the PWSC PWSC annual report PWSC annual budget documents PWSC production and metering records PWSC billing records Government accounts PWSC gazetted tariffs Risks Technical support by international experts ceases too early. PWSC is unable to retain trained personnel. Political interference in tariff setting. Appropriate regulations to support state water and sewerage services cannot be negotiated. Cultural interference in the collection of bills, disconnection of water services for nonpayment, and acceptance of illegal connections. Tariff for nonresidential sewer is $3.73/1,000 gallons by FY2015 (2010 baseline: $0) PWSC gazetted tariffs 4. Effective public consultation in place Public supports the creation of a PWSC during congressional hearings (T1C) Minutes of congressional hearings Water conservation community awareness plan developed and implemented by April 2012 (T2C) Certified plan by the PSC Health awareness support plan developed and implemented by April 2012 (T2C) Certified plan by the PSC Activities with Milestones 1. Legal and policy framework for water sector improvement is in place (due December 2010): Inputs ADB: ADF $3.40 million
12 12 Activities with Milestones 1.1 Creation of legislation enacting a PWSC and its regulations (T1C) 1.2 Definition of the powers of a corporatized body s board of directors including the power to set tariffs 1.3 Tariff reform with provisions for (a) universal metering of consumers supplied from the Koror Airai water supply system; (b) differentiation of residential and nonresidential consumers; (c) introduction of a block water supply tariff for residential consumers, and introduction of sewerage charges; and (d) increasing the average volumetric tariff (T1C) 1.4 A national water resources management plan is prepared (T2C) 1.5 Changes to environmental legislation and regulations enacted (T2C). Inputs OCR $12.60 million Government: $1.2 million 2. An independent PWSC delivers improved services (due December 2012): 2.1 A phased implementation plan for the PWSC is prepared (T1C) 2.2 A phased transfer plan of the BPW water and sewer operations staff and assets to the PWSC is prepared (T2C) 2.3 Implementation of an asset transfer plan 2.4 Implementation of a staff/organization plan; preparation of a capacity building plan 2.5 Preparation of technical guidelines and standards (T2C) 2.6 Update of water sector investment plans (T2C) 2.7 Development of commercial systems and procedures including customer billing and collection (T2C) 2.8 Capacity development of BPW staff to undertake core planning and management functions 2.9 Development of a human resource strategy for the urban water supply sector 2.10 Dissemination of technical and management guidelines (T2C) 2.11 Installation of service connection meters on all unmetered connections (T2C) 2.12 Provision of meter-testing and calibration equipment, testing, and calibration of all existing service connection meters 2.13 Installation of flow meters within the existing network and at all storage tanks (T2C) 2.14 A comprehensive leak detection and repair program is implemented. 3. Full cost recovery is achieved in the water and sewerage sector (due April 2012): 3.1 Implementation of tariff reforms (T1C and T2C) 3.2 Development of the government and PWSC financing agreement (T2C). 4. Effective public consultation is in place (due December 2012): 4.1 Conduct public consultations on legislation to create a water supply and sewerage authority 4.2 Conduct public consultation on changes to water and sewerage tariffs 4.3 Implement a public awareness program on water conservation and health. ADF = Asian Development Fund, BPW = Bureau of Public Works, OCR = ordinary capital resources, PSC = program steering committee, PWSC = Palau Water and Sewer Corporation, T1C = tranche 1 condition, T2C = tranche 2 condition. Source: Asian Development Bank. 2. Monitoring 17. Project performance monitoring. The Government and ADB have agreed on a range of outcomes and output indicators to monitor program implementation and evaluate its impact within the overall program design and monitoring framework (see DMF above). The Government will establish a performance evaluation system for the program within 3 months of
13 13 loan effectiveness, which will be derived from the design and monitoring framework and policy matrix. 18. Safeguards monitoring. All safeguards are Category C. Should during the course of Program implementation, the PSC believe there may be an adverse impact on indigenous people, resettlement or the environment, the PSC, though the Minister of Finance, will advise ADB of their concerns and recommend appropriate action. 3. Evaluation 19. Program reviews will be undertaken on a continuing basis. The PSC will meet, as and when necessary, but at least once every quarter in a year to review program progress. ADB and the Government will conduct review missions 6 months after loan effectiveness and yearly thereafter to review the program s progress. A program review will also take place prior to the scheduled release of Tranche 2 funds. These reviews will, among others (i) assess implementation performance against program conditions and covenants, and (ii) identify relevant problems and constraints. If the reviews determine that changes are required in program implementation, the Government and ADB will agree on measures, including changes in implementation arrangements, to ensure that the program obligations are met. 4. Reporting 20. The MOF will provide ADB with (i) quarterly progress reports in a format consistent with ADB's Program Performance reporting system; (ii) consolidated annual reports including (a) progress achieved by output as measured through the indicator's performance targets, (b) key implementation issues and solutions, and (c) updated implementation plan for next 12 months; and (iii) a program completion report within 6 months of physical completion of the Program. To ensure programs continue to be both viable and sustainable, project accounts and the executing agency s audited financial statements, together with the associated auditor's report, should be adequately reviewed. F. Anticorruption Policy 21. ADB reserves the right to investigate, directly or through its agents, any violations of the Anticorruption Policy relating to the Project. 2 All contracts financed by ADB shall include provisions specifying the right of ADB to audit and examine the records and accounts of the executing agency and all Project contractors, suppliers, consultants and other service providers. Individuals/entities on ADB s anticorruption debarment list are ineligible to participate in ADBfinanced activity and may not be awarded any contracts under the Project. 3 G. Accountability Mechanism 22. People who are, or may in future be, adversely affected by the project, may address complaints to ADB, or request the review of ADB's compliance under the Accountability Mechanism. 2 Available at: 3 ADB's Integrity Office web site is available at:
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