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Water in the 21st Century : ADB's Evolving Role in the Changing Context

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ADB's Experience and Lessons Learned

ADB has implemented 437 water-related projects, for which financing totaling $15.7 billion has been provided (see figures at right). Evaluation studies show 51 percent of these projects were generally successful, but 11 percent were unsuccessful. Success was evaluated by a variety of indexes-including economic internal rate of return-many of which are affected by external factors, such as changes in the economic environment. For instance, declining real rice prices over the long term have adversely affected the economic evaluation of many irrigation projects.

An analysis of ADB's water operations shows positive trends for such concerns as the incorporation of social and environmental dimensions, increased water user responsibility and water use efficiency, cost recovery, institutional strengthening, quality control, and monitoring arrangements. ADB's water projects, however, tended to be identified, processed, administered, and evaluated within their subsector context, reflecting the fragmented approach to planning and implementing water projects in most DMCs. For example, legal aspects of water allocation have been addressed in less than one quarter of approved projects, and only one third of the projects included water conservation measures. This tends to confirm that ADB's water loans have, in the past, focused largely on improving water services (supply-side solutions) in a subsector context, and that relatively few have addressed water resource issues, including water scarcity and efficient allocation of water between different uses.

The striking lesson from ADB's involvement in water-related projects is that, as competition for water increases, a more comprehensive and integrated approach to water operations is needed to encompass goals of social welfare, environmental integrity, and economic productivity. Fundamental actions to achieve this are

• stakeholder participation in all stages of the project cycle;
• attention to the complementary roles of the public and private sectors, recognition of the special contribution of women, and incorporation of economic instruments to improve allocation efficiency;
• integration of pro-poor strategies into project formulation to ensure that services are extended to poor areas and that rights of access are assured for the poor and other disadvantaged groups;
• strengthening of regulatory and control functions to maximize opportunities for private sector participation in service delivery;
• environmental protection and enhancement as an integral part of every new project, with each project being evaluated in the whole river basin context; and
• acquiescence of directly affected communities prior to committing investment funds.

A new generation of water projects with an integrated approach to supply and demand management has emerged. These incorporate fully the principles of integrated water resource management and build on country-specific analyses of water resource needs, constraints, and potential. The first such analysis was made with ADB assistance in Sri Lanka in 1993 and led to the formulation of a national water sector profile and reform action plan. This was followed by ADB-supported institutional strengthening and policy reforms, which will pave the way for new investments in water resource development. Other examples include Lao People's Democratic Republic, Pakistan, and Viet Nam where ADB is now supporting policy reforms and capacity building for integrated water resource management. An ADB-financed assessment of the water sector in the PRC (concluded in 1999) helped formulate strategic initiatives and an action plan that reflect a shift from a sectoral focus toward a more integrated and comprehensive approach. Projects now being prepared in the PRC are tackling traditional water resource problems in conjunction with biodiversity conservation and legislative changes for improved natural resource management.

As the private sector assumes greater importance in development financing, ADB's catalytic role of mobilizing private capital has also grown. ADB's private sector support focuses on projects with significant economic and social merit and, where, because of long payback periods or perceived high risks, private investors have tended to be reticent. In the water sector, provided the projects are part of a well-conceived privatization strategy, ADB encourages private initiatives by providing direct financial support. Significant recent examples are the Maynilad Water Services Project for water and sewage facilities in Metro Manila, Philippines, which is expected to benefit 90,000 poor families; and Chengdu Water Supply Project in Sichuan Province, PRC, ADB's first build-own-transfer project. In line with the evolving water policy, which encourages increased private sector participation to improve service accountability, such initiatives are expected to increase and encompass an ever-widening range of social infrastructure.

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