Solomon Islands : Urban Water Supply and Sanitation Sector Project - Second Additional Financing

Project Name

Urban Water Supply and Sanitation Sector Project - Second Additional Financing

Project Number

51271-004

Country / Economy

• Solomon Islands

Project Status

Proposed

Project Type / Modality of Assistance

• Grant

Source of Funding / Amount

Grant: Urban Water Supply and Sanitation Sector Project, second additional financing

Source	Amount
Asian Development Fund	US$ 25.45 million

Operational Priorities

• OP1: Addressing remaining poverty and reducing inequalities
• OP3: Tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability
• OP4: Making cities more livable

Sector / Subsector

• Water and other urban infrastructure and services / Urban sanitation - Urban water supply

Gender

Effective gender mainstreaming

Description

Project Rationale and Linkage to Country/Regional Strategy

Background. In September 2019, the Asian Development Bank (ADB) approved the Urban Water Supply and Sanitation Sector Project (the ongoing project), which adopts a sector approach for developing sustainable, inclusive, and climate resilient water supply and improved sanitation in the greater Honiara area (GHA) and in five other towns of Auki, Gizo, Munda, Noro, and Tulagi in Solomon Islands. The ADB financing comprises a (i) concessional loan of $28.00 million from ADB's ordinary capital resources, and (ii) a grant not exceeding $9.00 million from ADB's Special Fund resources (Asian Development Fund). The ongoing project is cofinanced through a European Union (EU) grant of

18.00 million ($20.35 million equivalent), administered by ADB; a World Bank concessional loan of $15.00 million. The ADB and World Bank financing were declared effective in April 2020. In September 2021, ADB approved an additional financing grant of $4.59 million, sourced from Global Environment Facility (GEF) and administered by ADB. In December 2023, a second additional financing of $15.00 million from World Bank was approved. The ongoing project closing date is 31 December 2028. The executing agency is the Ministry of Finance and Treasury and the implementing agency is the Solomon Islands Water Authority (SIWA). The ongoing project outputs include: (i) continuous, safe, and climate resilient urban water supply ensured; (ii) urban sanitation services are effective, efficient, and safe in GHA; (iii) enhanced and sustained awareness and behaviors of hygiene and water conservation in GHA and five towns; (iv) SIWA is financially and technically sustainable; and (v) management of Honiara's drinking water source area strengthened to build resilience to climate change.

Performance of the Ongoing Project. Progress towards achieving the ongoing project outcome, following the outcome level indicators, is summarized below:

Water supply coverage: Strong progress has been made towards achieving the water supply coverage target of 16,500 households, with 16,186 households connected at the end of August 2023.

Nonrevenue water (NRW) reduction: Progress towards reducing NRW in Honiara to 30% by 2027 is off track. Average monthly NRW has marginally decreased from the 2019 baseline value of 62% to 61% in August 2023.

Sewerage coverage: Increasing SIWA's sewerage coverage to 4,000 households is off track as the project's Honiara sewer expansion subproject has yet to go to market for bidding. As of August 2023, only 661 households were connected to SIWA's sewerage networks.

On-site sanitation management: Progress towards achieving the target of 14,000 households in greater Honiara benefiting from improved onsite sanitation policies is on track following preparation of the draft GHA Comprehensive Sanitation Plan 20222026.

Water quality in Honiara: The water quality compliance target for sewage discharged from the Honiara sewer systems is likely to be partially achieved if works to reconfigure the sewer system proceed under the additional financing.

SIWA financial sustainability: Full recovery of annual operation and maintenance costs, asset depreciation costs, debt servicing costs from user charges and government community service obligation payments is essential for SIWA's financial sustainability. SIWA achieved full cost recovery in 2020 and fell short of the target (by less than 3%) in 2021 and 2022.

Additional Financing Rationale: The project is facing major cost overruns because the price of goods and civil works have increased substantially since its approval in 2019. This escalation has been seen in most of ADB's Pacific developing member countries; recent bids for civil works in Solomon Islands indicate that construction costs have increased by up to 70% since March 2020. Status on each performance indicator is outlined below.

(i)The project is delivering expected outputs despite implementation delays caused by the coronavirus disease pandemic, which slowed design work, impacted market availability of goods and services, increased market prices, and limited ability of consultants and contractors to mobilize to Solomon Islands. The ongoing project has made considerable progress and is expected to deliver project outcomes and outputs by the completion date.

(ii)Project implementation progress is satisfactory. On 30 September 2023, overall progress was estimated at 35.3% against an overall elapsed project duration of 47.8%. To date, 39 contracts with an aggregate cost of $63.2 million equivalent (69%) had been awarded, of which $53.9 million is funded by ADB, GEF, and World Bank, and $9.3 million by SIWA. Disbursements from ADB and ADB-administered loan and grant accounts amounted to $21.3 million (34%); and disbursements from the World Bank loan account amounted to $2.8 million (19%).

(iii)The government is complying with loan and grant covenants and assurances, including those concerning anticorruption measures, gender, procurement, consulting services, disbursement and, safeguard policies. No safeguards compliance issues have arisen.

(iv)Project risks identified are being managed and mitigated.

(v)ADB's project performance rating has declined to "for attention" due to the delayed submission of fiscal year (FY) 2022 annual entity financial statements (AEFS). The FY2022 AEFS is currently being reviewed by the Solomon Islands Office of the Auditor General (OAG), and when approved will be submitted to ADB and the World Bank.

The project is therefore assessed as having a potential problem due to the delayed submission of the FY2022 AEFS. However, the proposed additional financing still meets the eligibility criteria for an additional financing: (i) the overall project remains technically feasible, economically viable, and financially sound; (ii) the overall project continues to be a high priority for the government; (iii) the overall project is aligned with the government's National Development Strategy (NDS) 2016 to 2035; and (iv) the overall project is aligned with (a) ADB's Strategy 2030 and its operational priorities of accelerating progress in gender equality (OP2); tackling climate change, building climate and disaster resilience, and enhancing environmental sustainability (OP3); making cities more livable (OP4); (b) ADB's Pacific Approach, 20212025; and (c) ADB's Water and Urban Sector Directional Guides.

Impact

Access to safe water and improved sanitation in urban areas increased

Outcome

Efficiency, accessibility, climate change and disaster resiliency, and sustainability of safe water and sanitation improved in Auki, GHA, Gizo, Munda, Noro, and Tulagi towns.

Outputs

Continuous, safe, and climate resilient urban water supply ensured

Urban sanitation services are effective, efficient and safe in GHA.

Enhanced and sustained awareness and behaviors of hygiene and water conservation in GHA and five towns.

SIWA is financially and technically sustainable

Management of Honiara's drinking water source area strengthened to build resilience to climate change

Geographical Location

Auki, Gizo, Honiara, Munda, Noro, Tulagi

Safeguard Categories

Environment

C

Involuntary Resettlement

C

Indigenous Peoples

C

Summary of Environmental and Social Aspects

Environmental Aspects

Involuntary Resettlement

Indigenous Peoples

Stakeholder Communication, Participation, and Consultation

During Project Design

During Project Implementation

Contact

Responsible ADB Officer

Blaik, Stephen

Responsible ADB Department

Sectors Group

Responsible ADB Division

Water and Urban Development Sector Office (SG-WUD)

Executing Agencies

Ministry of Finance and Treasury

Timetable

Concept Clearance

22 Mar 2024

Fact Finding

15 May 2024 to 17 May 2024

MRM

-

Approval

-

Last Review Mission

-

Last PDS Update

22 Mar 2024

Funding