|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.