Lao People's Democratic Republic: Vientiane Urban Infrastructure and Services Project [Loan 1834-LAO]

Background

The urban sector in the Lao People's Democratic Republic (Lao PDR) is at a nascent stage. Improving this sector has become critical to national development, just as increased urbanization also led to a call for enhanced urban management through decentralization. More recently, Vientiane, the country's capital and premiere urban center, has grown to an estimated 0.75 million people in 2010 with an administrative area of 3,920 square kilometers. At loan approval, the Vientiane Urban Infrastructure and Services Project was seen to further improve the city's urban environment while supporting government reforms for effective and responsive urban management to sustain its investments. Together with a grant from the Agence Française de Développement, the Asian Development Bank (ADB) provided a $25-million concessionary loan to finance the project.

ADB has been the leading development partner in the Lao PDR urban sector. Its approach, which covered Vientiane, secondary provincial districts, and small district towns, and included urban reform, has been comprehensive and ambitious. In this context, the project was ADB's second integrated urban development project in Vientiane and the third of four such projects in the country. This multisector assistance addressed critical missing links of primary and secondary roads and drainage and provided hardware for improved solid waste management and traffic management. For grassroots participation in urban management, the project featured a demand-driven social program to improve community infrastructure and services. Finally, to further decentralize urban governance in Vientiane, a capacity-building program (7% of total cost) was built in to accelerate transformation of the Vientiane Urban Development Administration Authority (VUDAA) into an autonomous agency capable of managing, financing, and delivering urban services.

Summary of Assessments

Given that its strategic objectives of improved quality of life, urban productivity, and economic growth were met, the project was successful. While economic conditions and social problems still ranked among top household concerns, priority concerns had shifted away from flooding, inadequate drainage, and poor access roads to the need for better solid waste services, water supply, and traffic management. Meanwhile, the structure and content of various ADB interventions in theurban sector helped conceptualize a sector approach in the Lao PDR including its role in Vientiane. For the project, this effort at value addition for the future met a key setback when a strong VUDAA organization did not take hold.

The project was partly relevant due to emergent issues that take away from its vision of sustainable decentralized urban management in Vientiane. On the upside, its multisector approach to resolve multiple and interlinking socioeconomic problems was appropriate and readily implementable, given the matching functions of Ministry of Public Works and Transport (MPWT) and VUDAA's relative weakness.

The delivery of infrastructure components was highly effective. They either met or exceeded appraisal targets for infrastructure and service delivery. By improving urban infrastructure and services in the city, the project achieved its main outcome of improved urban environment, public health, and access to basic services. In contrast, the institutional part was unsuccessful, as parallel reforms on urban governance to sustain project assets failed to take root. The institutional impact on VUDAA was moderate at best. As a vehicle for urban infrastructure improvement and change in urban governance, the project is rated effective.

The project was efficient due to the achievements of its physical infrastructure outputs. In addition, the multisector approach enhanced the efficiency of fund use by addressing several distinct and urgent subsector problems of traffic, flooding, and waterlogging in Vientiane. On the downside, implementation performance was still marked by cost overruns (i.e., higher unit costs) and delays (i.e., additional works added). The project is assessed as likely to be sustainable. Prospects for acceptable maintenance allocations look promising. At the same time, it is not clear whether the government has the resources to vigorously pursue investments in physical infrastructure, particularly the village area improvement program. Efforts to move reforms for decentralized urban management in Vientiane have stalled, and the future of VUDAA is unclear.

Key Issues

The role of VUDAA in a municipal administration will be considered by the Public Administration and Civil Service Authority, under the Prime Minister's Office, in association with the functions of Department of Public Works and Transport (DPWT). In the future, VUDAA's role may be less than anticipated, with the central government (and DPWT) playing an increasingly larger role. Meanwhile, VUDAA's continued financial dependence on MPWT entails possible crowding out of funds for other priority roads (i.e., rural roads). This can be avoided with better fiscal solutions as VUDAA is able to raise more revenues.

Other issues for the future are (i) the deteriorating water quality at the That Luang Marsh in the absence of a wastewater treatment plant in Vientiane; (ii) the need for an integrated and systematic response to development pressures from increased urbanization (i.e., solid waste collection, road congestion, wastewater pollution, clean air, etc.); and (iii) the continuing need for capacity-building support of sustainable urban development and management (i.e., decentralized urban management).

Lessons

Lessons learned from the project experience are that (i) implementing urban institutional reform is complex, (ii) the difficult process of decentralization will benefit from a systematic sector-wide approach to change, (iii) a balanced approach to urban land use ensures success, (iv) a demand-driven community approach facilitates better implementation, and (v) clear horizontal and vertical roles and responsibilities for urban sector agencies are important in a multisector approach.

Follow Up Actions

Given the increasing prominence of the urban sector in the country, in particular in Vientiane, follow-up actions to sustain decentralized urban management are identified for consideration by the Southeast Asia Department in the context of its next country partnership strategy. These are:

• Support revisions to the Law on Local Administration and operationalization of the National Urban Sector Strategy and Investment Program 2020
• Develop and implement a strategic sector program based on the implementation of the revised Law on Local Administration and the National Urban Sector Strategy and Investment Program 2020