Bangladesh: Establishing a Regulatory Framework for Urban Water Supply and Sanitation

Sovereign Project | 42176-012

Summary

The objective of the assignment is to assist the Government in making the Water Cell in the Policy Support Unit (PSU) of the Local Government Division (LGD) functional by developing necessary rules and standards for regulating water utilities operating in the urban sector and starting performance monitoring of major water utilities. Specific outputs will include: (i) drafting rules and standards for regulating water utilities, including financial management regulations, tariff setting methodology, service standards and performance indicators, and customer service regulations; (ii) preparing monitoring reports on the performance of major water utilities by using the approved rules and standards by reviewing the reports submitted by water utilities; (iii) preparation for the establishment of Water Economic Regulatory Commission (WERC), including the preparation of a road map; and (iv) capacity building of the government officers, particularly those of the Water Cell, to perform their obligations.

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Project Name Establishing a Regulatory Framework for Urban Water Supply and Sanitation
Project Number 42176-012
Country Bangladesh
Project Status Approved
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 8320-BAN: Establishing a Regulatory Framework for Urban Water Supply and Sanitation
Technical Assistance Special Fund US$ 500,000.00
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change Governance and capacity development
Partnerships
Private sector development
Sector / Subsector

Water and other urban infrastructure and services - Urban water supply

Gender Equity and Mainstreaming
Description The objective of the assignment is to assist the Government in making the Water Cell in the Policy Support Unit (PSU) of the Local Government Division (LGD) functional by developing necessary rules and standards for regulating water utilities operating in the urban sector and starting performance monitoring of major water utilities. Specific outputs will include: (i) drafting rules and standards for regulating water utilities, including financial management regulations, tariff setting methodology, service standards and performance indicators, and customer service regulations; (ii) preparing monitoring reports on the performance of major water utilities by using the approved rules and standards by reviewing the reports submitted by water utilities; (iii) preparation for the establishment of Water Economic Regulatory Commission (WERC), including the preparation of a road map; and (iv) capacity building of the government officers, particularly those of the Water Cell, to perform their obligations.
Project Rationale and Linkage to Country/Regional Strategy

The water supply coverage of Bangladesh is 81% as of 2010, which is lower than the global and South Asia regional average of 89% and 90% respectively. Although the coverage reached 85% in urban areas, access to piped water supply in household premises is provided to only 20% of the urban population, requiring significant improvement in service levels. Out of the total 309 urban towns, only 102 have piped water supply systems, which generally provide intermittent supply of less than 10 hours. The coverage is lower for sanitation, with only 57% of the urban population having access to improved sanitation facilities in 2010. In the whole country, wastewater treatment is provided to only a small part of Dhaka. The water supply and sanitation (WSS) sector is plagued with high levels of non-revenue water (estimated at about 25% on average), inadequate cost recovery caused by low tariff, limited utility autonomy, and operational inefficiency, resulting in poor service delivery in many urban areas of the country.

The statutory responsibility for the WSS sector rests with the Ministry of Local Government, Rural Development and Cooperatives (MLGRDC), which is tasked with policy decisions, sectoral budgetary allocation, and evaluation and monitoring of policies and projects. The Department of Public Health Engineering (DPHE) and Water Supply and Sewerage Authorities (WASAs) function under the administrative control of the Local Government Division (LGD) of MLGRDC. WASAs are responsible for the WSS service provision in Dhaka, Chittagong, and Khulna, and municipalities (pourashavas) and city corporations (except for the above three cities) provide WSS services in their jurisdictions, with technical support from DPHE. The Policy Support Unit (PSU) was established in 1999 in the LGD to lead the policy development of the WSS sector.

Given the sector challenges, reforms are needed in two areas: (i) institutional development of water utilities including WASAs, city corporations, and municipalities, and (ii) establishment of a regulatory framework. These two are heavily intertwined because a regulatory framework cannot usually succeed without institutionally developed and more autonomous utilities, and the sustainability of institutionally developed utilities will be hard pressed without an independent regulator. The primary objective of establishing an economic regulatory framework is to ensure the provision of WSS services in an efficient, transparent, and equitable manner by (i) protecting the interests of customers, (ii) ensuring that the customers receive the expected level of services,(iii) ensuring that services are delivered at fair and reasonable tariffs, (iv) ensuring financial sustainability of utilities while providing incentives for efficiency, and (v) providing certainty for private sector investments.

The government recognized the need for a regulator in the WSS sector, and a policy condition was incorporated in the ongoing ADB-financed sector development program. In accordance with the condition, the government undertook a study on the most appropriate form of an independent water regulator. The study, supported by an ADB's TA, concluded that the creation of a fully-mandated regulatory body would be premature because water utilities still do not have enough autonomy and resources, and their commercial and financial systems are not strong. Instead, the establishment of the regulatory framework can be made in two stages, by first creating a Water Cell in LGD and then an independent Water Economic Regulatory Commission (WERC) after 3-5 years. The Water Cell will have the function of leading the reform initiatives for utilities and preparing sector conditions for establishing the WERC. This approach is clearly spelled out in the Sector Development Plan (FY2011-2025) of the government, and the MLGRDC issued a notification in January 2011 to establish the Water Cell in the PSU. The Water Cell needs to be made fully functional with clear mandates to achieve the intended objectives, for which the government has requested ADB's additional support.

The TA supports an important reform agenda of the government on the WSS sector as elaborated upon in the Sector Development Plan. ADB's Bangladesh country partnership strategy recognizes the WSS, included in the urban sector, as one of the six priority sectors, and highlights improvement of the legal and regulatory framework of the urban water sector. The TA is a follow-on from the ongoing loan and past TA, and is also linked with the planned Khilkhet Water Treatment Plant Project in Dhaka. The establishment of an economic regulatory framework will improve the enabling environment for the enhancement of public-private partnership (PPP) in the sector, which is being considered in the project. DANIDA is supporting institutional development of PSU, including sector coordination and policy implementation and monitoring, which is complementary to the TA's activities.

Impact Strengthened policy and institutional environment for improved urban water supply in Bangladesh.
Project Outcome
Description of Outcome Water cell operating with clear mandates and necessary tools.
Progress Toward Outcome activities ongoing to achieve outcome.
Implementation Progress
Description of Project Outputs

1. Appropriate rules and standards for regulation and monitoring finalized.

2. Performance of water utilities monitored by the water cell.

3. Preparation initiated for establishing a WERC.

4. Capacity for regulatory monitoring strengthened.

Status of Implementation Progress (Outputs, Activities, and Issues)

1. Drafts of financial management regulation, service standards and key performance indicators, tariff-setting and review methodologies, customer service regulation, and finance and operating reporting requirements prepared.

2. Report formats prepared.

3. Draft water supply and sanitation regulatory commission bill deliberated and discussed.

4. Assessment made and results incorporated in capacity building program.

Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design Preliminary discussion was held with the PSU and LGD in developing the concept. The preliminary concept was explained at the LCG meeting for WSS held on 2 October 2012, which was well received by the participants. Further discussions will be held at the fact-finding with relevant government departments, major development partners including DANIDA, and other key stakeholders of the WSS sector.
During Project Implementation

A national steering committee (NSC) will be established to monitor TA implementation. The NSC will be chaired by the secretary of LGD and consist of high-level representatives from the Planning Commission, Dhaka Water Supply and Sewerage Authority (DWASA), DPHE, Economic Relations Division, LGD, Local Government Engineering Department, Municipal Association of Bangladesh, and PSU. The NSC will meet at least quarterly to discuss the overall progress and provide policy guidance to the TA. Consultation workshops with major water utilities will be held to seek their inputs in the drafts and disseminate the final documents. The workshops will also serve as a venue to share good practices and lessons learned through the implementation of the TA. ADB will undertake the TA review in collaboration with the EA, at least twice a year during the implementation.

The draft Regulatory Commission Bill went through public comment process and the latest draft was discussed on 12 February 2015 at the National Forum for Water Supply and Sanitation, the highest consultative body of the water supply sector chaired by Senior Secretary of the Local Government Division (LGD). Final round of comments was solicited from stakeholders and is being reviewed.

Business Opportunities
Consulting Services International expertise (15 person-months) will be obtained in the areas of financial regulation and water sector policy reform. National consultants (41 person-months) will have expertise in the fields of water sector policy reform, financial regulation, institutional development, and legal issues. The consultants will be engaged by ADB in accordance with the Guidelines on the Use of Consultants (2010, as amended from time to time). A team of consultants will be recruited through a firm under one package using the quality- and cost-based method of selection with a quality-cost ratio of 90:10. This ratio is justified due to the high level of expertise and quality required in the assignment. A simplified technical proposal will be used. In addition to the team, a few individual consultants may be engaged to address specific needs of the TA.
Responsible ADB Officer Norio Saito
Responsible ADB Department South Asia Department
Responsible ADB Division Urban Development and Water Division, SARD
Executing Agencies
Policy Support Unit, Local Government DivisionMr. Kazi Abdul Noor, Project Director (Joint Secretary)Policy Support Unit, DPHE Building (Ground Floor), 14, Shaheed Capt. Mansur Ali Sharani, Kakrail, Dhaka-1000
Timetable
Concept Clearance 06 Nov 2012
Fact Finding 15 Nov 2012 to 21 Nov 2012
MRM -
Approval 28 Jan 2013
Last Review Mission -
Last PDS Update 19 Mar 2015

TA 8320-BAN

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
28 Jan 2013 03 Jun 2013 03 Jun 2013 30 Jun 2015 - -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
500,000.00 0.00 0.00 0.00 0.00 0.00 500,000.00 28 Jan 2013 534,481.67

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