Palau: Koror-Airai Sanitation Project

Sovereign Project | 42439-013 Status: Active


ADB is helping Palau improve sanitation services in Airai and Koror, where about 80% of the country’s population live.  The project will rehabilitate the sewerage network in Koror and develop a new sewerage system in Airai. It will also ensure sewage treatment and waste disposal meets Palau’s environmental and health standards, and make hygienic public toilets available in Koror.

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Project Name Koror-Airai Sanitation Project
Project Number 42439-013
Country Palau
Project Status Active
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 3060-PAL: Koror-Airai Sanitation Project
Ordinary capital resources US$ 26.90 million
Loan 3061-PAL: Koror-Airai Sanitation Project
Concessional ordinary capital resources / Asian Development Fund US$ 1.90 million
Strategic Agendas Environmentally sustainable growth
Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector

Water and other urban infrastructure and services - Urban sewerage

Gender Equity and Mainstreaming Effective gender mainstreaming
Description The project will provide priority sanitation infrastructure identified in the Koror- Airai Sanitation Master Plan (KASMP).
Project Rationale and Linkage to Country/Regional Strategy

Economic performance and prospects. In 2012, about 80% of Palau's population of 20,966 lived in Koror and Airai, and 118,754 tourists visited Palau and visitor arrivals to Palau increased by 3.6% over the first half of fiscal year (FY) 2013. Tourism accounted for roughly half of the nation's gross domestic product (GDP) of $231.9 million in FY2012. The average tourist stay is 4 nights, equivalent to a population increase of 6%. Palau's economy has overcome the effects of the global financial and economic crises, posting GDP growth of 6.3% in FY2012, with growth forecast at 3.0% in both FY2013 and FY2014. Longer-term growth prospects are positive given the country's appeal to tourists from Japan, the Republic of Korea, and Taipei, China. To support tourism growth, the country's basic public infrastructure must be upgraded and maintained. Improved water and sewerage infrastructure and an additional 500 hotel rooms are needed to accommodate current and projected visitors.

Public finance and debt. The government is in a strong position to undertake long-term investments to upgrade infrastructure needed to sustain economic growth. It recorded a current account surplus (including grants) equivalent to 5.9% of GDP in FY2012. The International Monetary Fund (IMF) projects Palau's current account surplus to remain at this level through to FY2017. Strong growth in tourist arrivals underpins Palau's economic growth and rising current account surpluses, and is expected to continue. The IMF estimates the country's external debt as 34.5% of GDP in FY2012, comprising 11.9% official government debt, 17.9% public enterprise debt, and 4.7% other. With planned ADB and other loans, the country's external debt to GDP ratio is expected to rise to 48.9% by the end of 2013 (7.7% official government debt and 41.2% public enterprise debt) in nominal terms. This is below the 50% threshold for debt sustainability applied by the IMF for countries with strong policy environments (based on the ADB and World Bank country performance assessment scores) if considered in terms of present value (i.e., discounting future payments).

Sector management. Palau's phased sanitation master plan, the KASMP, is based on extensive stakeholder consultation. The government has adopted a new water resource management policy to manage national and state water resources and Palau's Parliament, the Obiil Era Kelulau (OEK), has approved legislation to regulate the abstraction of water from the nation's fresh water sources. Through the creation of the Palau Water and Sewer Corporation (PWSC) in September 2011, the Government has integrated water and sewerage services into a single state-owned enterprise responsible for the delivery of water supply and sewerage services. The Utilities Consolidation Act 2013, aimed at optimizing efficiency in the management and delivery of power, water and sewerage services, has consolidated the PWSC and the Palau Public Utilities Corporation. PPUC is now mandated to deliver electricity, water and sewerage services and the PPUC water and wastewater operations division has been established to manage and operate Palau's water and sewerage services. The Water Sector Improvement Program (WSIP) is supporting establishment of the PPUC Water and Wastewater Operations division. Implementation of the WSIP has been delayed in some areas, but all policy actions are now complete. The creation of the PPUC Water and Wastewater Operations division and its development as a commercial enterprise is a first step toward possible private sector engagement in future.

Sector financial stability. The government is implementing its policy to achieve full cost recovery for water supply and sewer services by the end of FY2015. The Water and Sewer Corporation Act 2010 and the Utilities Consolidation Act 2013 specify that tariffs must be set so that they recover all operation and maintenance costs, depreciation, and indebtedness. The tariff structure became effective in April 2011 and includes volumetric water and sewer tariffs for domestic and nondomestic connections. Tariff increases also improve demand side management to reduce an unsustainably high level of per capita water consumption. Lifeline blocks to protect the poor and vulnerable are set below the cost of delivery. By 2015, the monthly water bill for households in the 5th income quintile is estimated at 4.1% of monthly income. In 2011, the government spent $3.8 million for water and sewerage services. The government aims to achieve the following targets by the end of FY2015: (i) government subsidies reduced from 74% (2011) to zero (ii) tariff collection efficiency improves from 92% (2011) to 95%, and (iii) nonrevenue treated water reduced from 43% (2010) to 25%.

Sewer system condition and capability. Koror's centralized sewerage system services more than 80% of the population. The sewerage network comprises 40 kilometers of gravity mains, 13 kilometers of force (pumped) mains, 48 pump stations, and a sewage treatment plant (STP) located on the island of Malakal. For the most part, the commercial sector of the city is located at the crest of the ridge and the residential hamlets stretch down to the coast. Sewage is pumped up to the ridge and flows to the STP. Two other islands, connected by causeways, are part of the network. The sewer network and STP is over 30 years old. While the STP and some pump stations have been refurbished in the last 10 years, these have not been maintained or operated as designed.

Adverse effects of insufficient sewer capacity. The degraded condition, limited capacity of the Koror sewerage network, and rapid development and unsuitable soils for septic tanks in Arai are causing environmental and health issues with serious impacts on the economy: (i) Environmental issues. With limited flushing within Palau's lagoons, sewage overflows result in a buildup of waste, which damages the fragile marine and mangrove ecosystem. The government has placed swimming bans in some areas near tourist hotels and local swimming spots; (ii) Health issues. The failure of the sewer system is placing the health of Palau's citizens at risk. From 1 April 2011 to 31 March 2012, Koror had 862 cases of gastroenteritis. Fifty percent of these occurred in the last quarter of 2011 when sewerage overflows were the greatest. Development of a much more serious waterborne disease, such as cholera, is a risk; (iii) Impact on the economy. The potential economic costs of the failures in the sewerage system include (i) direct and indirect health cost; (ii) overflow clean-up costs; and (iii) potential loss of tourism revenue associated with the impact of a serious disease outbreak. The long-term reputational risk to Palau's tourism industry from a major disease outbreak could be significant.

Government policy and strategy. The country's development plans are encapsulated in the Medium-Term Development Strategy. Two of the five priority actions are to (i) position Palau as the island of choice for environmentally conscious visitors and realize higher income from tourism; and (ii) make critical investments in sanitation, water, and power and prioritize maintenance. The ADB country partnership strategy 2009 2013 for Palau directly supports these priority actions, which are also consistent with priorities set in ADB's Strategy 2020 and the Pacific Approach. The project is identified in the country partnership strategy and responds to the ADB sector assessment.

Sustainability of sector reforms. ADB is supporting an integrated response to improving water and sanitation services in Palau. The WSIP has been supporting institution building and PPUC water and wastewater operations, especially in the areas of board operations, utility management, utility operation management, and financial management.

Impact The environment and public health are improved in Koror and Airai.

Project Outcome

Description of Outcome Improved delivery of sanitation services by PPUC.
Progress Toward Outcome Significant measurable implementation progress has been achieved.
Implementation Progress
Description of Project Outputs

Effective, efficient, and sustainable sewage collection systems in Koror and Airai.

Sewage treatment and disposal meets Palau's environmental standards.

Safe and hygienic public toilet facilities in Koror are available.

Effective project management.

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

Not yet due.

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Geographical Location

Safeguard Categories

Environment B
Involuntary Resettlement C
Indigenous Peoples C

Summary of Environmental and Social Aspects

Environmental Aspects The Government and PPUC are complying with the loan covenants and assurances and no corrective actions are required to maintain compliance.
Involuntary Resettlement The Government and PPUC are complying with the loan covenants and assurances and no corrective actions are required to maintain compliance.
Indigenous Peoples The Government and PPUC are complying with the loan covenants and assurances and no corrective actions are required to maintain compliance.
Stakeholder Communication, Participation, and Consultation
During Project Design The Government and PPUC are complying with the loan covenants and assurances and no corrective actions are required to maintain compliance.
During Project Implementation The Government and PPUC are complying with the loan covenants and assurances and no corrective actions are required to maintain compliance.

Responsible Staff

Responsible ADB Officer Blaik, Stephen
Responsible ADB Department Pacific Department
Responsible ADB Division Urban, Social Development & Public Management Division, PARD
Executing Agencies
Ministry of Finance
3rd Floor, Executive Bldg, ROP Capitol
Ngerulmud, Melekeok State,P.O. Box 6011
Koror, PW 96940, Republic of Palau


Concept Clearance 20 Nov 2009
Fact Finding 18 May 2012 to 08 Jun 2012
MRM 03 Jul 2012
Approval 19 Nov 2013
Last Review Mission -
Last PDS Update 27 Sep 2016

Loan 3060-PAL

Approval Signing Date Effectivity Date Closing
Original Revised Actual
19 Nov 2013 28 Mar 2014 08 May 2014 31 Aug 2022 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 28.10 Cumulative Contract Awards
ADB 26.90 19 Nov 2013 21.96 0.00 82%
Counterpart 1.20 Cumulative Disbursements
Cofinancing 0.00 19 Nov 2013 3.22 0.00 12%

Loan 3061-PAL

Approval Signing Date Effectivity Date Closing
Original Revised Actual
19 Nov 2013 28 Mar 2014 08 May 2014 31 Aug 2022 - -
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 1.90 Cumulative Contract Awards
ADB 1.90 19 Nov 2013 1.42 0.00 82%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 19 Nov 2013 0.91 0.00 52%
Title Document Type Document Date
Koror-Airai Sanitation Project: Audited Project Financial Statements (8 May 2014-30 September 2015) Audited Project Financial Statements Aug 2016
Project Agreement for Koror-Airai Sanitation Project Project/Program Agreement Mar 2014
Loan Agreement (Special Operations) for Koror-Airai Sanitation Project Loan Agreement (Special Operations) Mar 2014
Loan Agreement for Koror-Airai Sanitation Project Loan Agreement (Ordinary Resources) Mar 2014
Koror-Airai Sanitation Project Project/Program Administration Manual Oct 2013
Koror-Airai Sanitation Project: Procurement Plan Procurement Plans Oct 2013
Koror-Airai Sanitation Project: Report and Recommendation of the President Reports and Recommendations of the President Oct 2013
Koror-Airai Sanitation Project Gender Action Plans Oct 2012
Preparing the Sanitation Sector Development Project Initial Poverty and Social Analysis Nov 2009

Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.

Evaluation Documents See also: Independent Evaluation

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Related Publications

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