Catalog

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p. 9 of 26 BACK | NEXT Executive Summary I. Introduction II. The Urban Sector III. The Bank's Involvement in the Urban Sector A. Trends in Bank Lending B. Performance of Lending in the Urban Sector C. Coordination with Multilateral and Bilateral D. Lessons Learned IV. Objectives and Policy Priorities V. The Bank's Urban Sector Strategy VI. Implications for Bank Operations VII. Conclusion

Urban Sector Strategy : III. The Bank's Involvement in the Urban Sector

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B. Performance of Lending to the Urban Sector

62. The Bank’s lending for IUDPs began in 1976 with a loan for the Bandung Urban Development and Sanitation Project in Indonesia. Subsequently, some 60 percent of IUDPs have been implemented in Indonesia, with the remainder located in Bangladesh, Bhutan, India, Lao PDR, Nepal, Pakistan, the Philippines, Sri Lanka, and Vanuatu. In addition to investments in infrastructure and services, IUDPs have had a strong emphasis on policy development and institution building. These began as concerns for improving the access of the poor to basic services and the mobilization of resources, and have since been broadened to include capacity building in local governments, particularly in terms of improved urban management, development of public-private partnerships, and improved community participation.

63. The Bank’s Operations Evaluation Office reports¹⁰ give mixed reviews of IUDP performance (ADB 1995b). The reports noted, for example, that while project design addressed a range of components simultaneously, the claimed benefits of synergy among components, which should result from the implementation of linked subprojects (e.g., roads, drainage, and solid waste management) were seldom borne out in practice. Many IUDPs have been carried out under a top-down approach whereby cities are selected for inclusion on the basis of national development plans or perceived infrastructure deficiencies, rather than on the basis of local government commitment to or preparation for development assistance. Other common problems included a mismatch between project target groups (generally low-income households) and the actual beneficiaries (who often included better-off households); poor cost recovery, lack of maintenance of project components, and a lack of specific criteria and indicators to measure success in achieving project benefits. Institutional development components were generally more successful when aimed at service agencies, such as improved billing collection rates and productivity increases in solid waste management, rather than when attempting to improve long-term institutional capacity in local government. Nevertheless, the economic and financial returns were found to be generally acceptable.

64. A recent impact evaluation study of Bank assistance to the urban development and housing sector (ADB 1997b), which conducted a detailed review and evaluation of 12 urban projects including 7 IUDPs, concluded that insufficient attention to institutional reform issues was largely responsible for compromising potential project benefits. While the IUDPs were generally found to be successful in improving living conditions and service efficiency, project sustainability was seriously compromised by failure of the projects to address institutional and urban management issues.

1. Water Supply, Sanitation, and Solid Waste

65. The Bank has had 30 years of experience in urban water supply and in 1976 made its first loan for integrated water supply and sewerage in Hyderabad, Pakistan. Most early projects were in large and medium-size cities in Hong Kong, China; Indonesia; the Republic of Korea; Lao PDR; Malaysia; Myanmar; Philippines; Singapore; and Thailand. The first loan for small towns was made in 1981 to the Republic of Korea. Capacity building and sector policy development have been key concerns throughout the period and the water sector’s TA program has addressed a wide range of issues over the past decade. In the last five years there has been an increase in the scope and number of policy reform measures incorporated in water supply and sanitation projects, focusing on defining the policy agenda, designing holistic systems, promoting autonomy in sector agencies and private sector participation, and increased community involvement.

66. Implementation experience of the water supply and sanitation sector has been mixed. A Bank report (ADB 1994b) noted the need to improve project preparation and design to achieve more satisfactory project performance (although recent water supply projects have had a higher success rating by adopting more integrated approaches). The report noted the need to match technologies, standards, and costs with community resources. It was also noted that institutional development had been poor, tariffs and cost recovery continued to be critical issues, and there was a need to improve the economic analysis of projects as a basis for design of investments and setting tariffs. Overall, sustainability continued to be an issue, requiring greater demand-responsiveness, an emphasis on water loss reduction, and a general focus on institutional reforms. More recently there has been increasing emphasis on introducing market-based mechanisms into water utilities as part of the capacity-building process.

67. The Bank has been involved in a number of solid waste management projects, primarily involving collection improvements and the construction of sanitary landfills in various DMCs, usually as a component of an IUDP. Bank assistance has also helped support commercialization and private sector participation in solid waste management. While collection services have generally improved significantly, problems have been experienced with location and construction of sanitary landfill facilities.

2. Urban Transport

68. The Bank’s role in urban transportation in the Region has been limited relative to the investment needs of the sector. To some extent, this is because other agencies, particularly the Overseas Economic Cooperation Fund of Japan and the World Bank, have provided support for the sector. The Bank has made only four urban transport loans: three for urban bridges and one for a more integrated package, Bangkok Urban Transport. Several TAs have addressed urban transport issues but have resulted in few projects. Investment in major transport infrastructure faces a variety of problems (not all of which are endemic to the transport sector), including the long lead time for projects, difficulties and high costs of land acquisition, and the multiplicity of agencies involved. However, road improvement is a typical component of IUDPs.

3. Urban Housing and Housing Finance

69. Bank operations in the housing and housing finance subsectors began in parallel with its operations in IUDP. Early projects in Hong Kong, China and the Republic of Korea focused on multistory housing projects, followed by core housing schemes in the Fiji Islands and Thailand, a new town development outside Bangkok, and then by housing finance projects in India and Sri Lanka. This time line of projects reflects the various changes in thinking about assistance to shelter over the past two decades. Support was also given to slum improvement and sites and services housing in many IUDPs. While housing projects were completed successfully, some components were delayed or canceled due to problems with land acquisition, and housing intended for the poor was often occupied by middle-income groups.

70. The Bank’s involvement in the housing subsector in the past five years has been limited. Currently, the focus is on increasing the availability of housing finance to low-income households through lending to financial intermediaries, which in turn on-lend to the informal sector via community-based financial institutions and NGOs. Three housing finance loans have been made, one for India and two for Sri Lanka; Sri Lanka experienced problems in targeting loans to low-income groups, and in the privatization of the host institutions. In addition to the housing finance loan in India, TAs are being used to strengthen state-level housing finance institutions and to establish a secondary mortgage market in the country. Policy dialogue focuses on removing legal and regulatory constraints to reform housing finance, strengthening links between the formal and informal finance sectors, laying the foundation for secondary mortgage markets, and supporting microcredit schemes for housing and income-generating activities.

71. The Impact Evaluation Study of Bank Assistance in the Urban Development and Housing Sector (ADB 1997b) noted that housing projects had suffered from a lack of quantifiable indicators of success in meeting targets. In addition, there was no private sector involvement in project development that could have introduced some market discipline into project design. More community ownership of projects at an early stage in project design could have improved O&M and achieved better cost recovery. The report noted that slum upgrading is a complicated task, in effect a mini-IUDP, and requires similar levels of effort in institutional coordination. Lastly, the report observed that a better understanding of beneficiaries and demand is needed, with resulting benefits in sector policies, institutional responses, and investment programs.

4. Urban Finance

72. Until recently the Bank had been involved in few stand-alone urban finance projects. The Regional Development Account project in Indonesia¹¹ was an attempt to shift the focus of lending to the financing mechanisms of the sector. More recently, the Bank has begun to investigate the feasibility of an urban and environmental infrastructure fund for India,¹² designed to attract domestic and foreign capital into the sector.

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