Lao People’s Democratic Republic Water Supply and Sanitation Sector Review Final dated December 15, 2010 Sustainable Development Department East Asia and Pacific Region This volume is a product of the staff of the World Bank. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. 68608 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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Lao People’s Democratic Republic
Water Supply and Sanitation Sector Review
Final dated December 15, 2010
Sustainable Development Department
East Asia and Pacific Region
This volume is a product of the staff of the World Bank. The findings, interpretations, and
conclusions expressed herein do not necessarily reflect the views of the Board of Executive
Directors of the World Bank or the governments they represent.
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1
CURRENCY EQUIVALENTS (Exchange Rate Effective September 13, 2010)
Currency Unit = Lao Kip (LAK)
LAK 1,000 = US$0.122
LAK 8,196.7 = US$1
FISCAL YEAR
October 1 – September 30
ACRONYMS AND ABBREVIATIONS
ADB Asian Development Bank NPNL Nampapa Nakhon Luang
AFD Agence Française de NPSEs Nam Papa State Enterprises
Developpement NRW Non revenue water
BOT Build-Operate-Transfer NSEDP National Socio-Economic
DHO District Health Office Development Plan
DHUP Department of Housing and NT Nam Theun
Urban Planning NUSDSIP National Urban Sector
DPWT Department of Public Works Development Strategy and
and Transportation Investment Plan
GDP Gross Domestic Product O&M Operation and Maintenance
GFS Gravity Fed System OBA Output-Based Aid
GRET Group of Research and ODA Official Development
Technological Exchange Assistance
HH Households PM Decree Prime Minister Decree
IMT Implementation and PPP Public-Private Partnership
Maintenance Team PRF Poverty Reduction Fund
IWG Infrastructure Working Group SNV Netherlands Development
COUNTRY CONTEXT............................................................................................................. 8 LAWS AND REGULATION, AND STRATEGIES ................................................................ 8
1.1 Main Laws and Regulations .................................................................................... 8
1.2 Water Supply Sector Policy and Strategy .............................................................. 10 1.3 Current WSS Models in Practice in the Lao PDR ................................................. 16
2.4 Affordability .......................................................................................................... 23 INVESTMENT PRIORITIES AND FINANCING ................................................................. 23 KEY ISSUES AND RECOMMENDATIONS ........................................................................ 27
Annex 1: Map on Status of Water Supply Systems in Urban Centers ..................................... 32
Annex 2: Water Sector Organizational Chart .......................................................................... 33 Annex 3: Linkage between central and local government institutions in the provision of water
supply services ........................................................................................................ 34 Annex 4: Percentage of households with access to safe water source, dry season, 2003 – 2008
................................................................................................................................. 35 Annex 5: Percentage households with access to improved sanitation, 2003 - 2008................ 36 Annex 6: Service Coverage by NPSE, 2008 ............................................................................ 37
Annex 7: NRW estimates by NPSE, 2008 ............................................................................... 38 Annex 8: Financial performance data by NPSE, 2006 - 2008 ................................................. 39
Annex 9: Water tariffs by province (2008), kip/m3
(LAK 1000=US$0.122) .......................... 40 Annex 10: Expectations and Achievements of the 2008 – 2010 Tariff Review ...................... 41
Annex 13b: Aggregate ministry/authority specific cost estimates of meeting MDGs ............ 44 Annex 14: Review of Current WSS Services Delivery Models in the Lao PDR .................... 45
Annex 15: Goals for Urban Water Supply Sector Road Map……………………………… 59
Table 5: Urban Water Supply Targets – Coverage & Population Served (2004 – 2020) ........ 24
Table 6: Sector Investment Plan for Urban Water Supply Projects (2005 – 2020) ................. 24
Table 7: Summary of Key Issues, Recommended Policy Actions and Intended Outcomes ... 27
Figure 1: Investments in Urban Water Supply 1999 – 2014 ................................................... 13 Figure 2: Investments in Urban Water Supply by Source of Financing (1999 – 2014) .......... 13 Figure 3: Capital Expenditure for Rural Water Supply & Sanitation, 2000 – 2009 (in US$
million) ..................................................................................................................................... 14 Figure 4: Capital Expenditure for Rural Water Supply & Sanitation, 2000 – 2009 (in %) ..... 15
Box 1: The MIREP Programme ............................................................................................... 14
(i) The Lao PDR targets under the Millennium Development Goals (MDGs) are to
provide 69% of the total population with access to an improved drinking water source and
63% with access to improved sanitation by 2015, using the 1995 service level estimates as the
basis. According to the 2010 WHO-UNICEF Joint Monitoring Programme (JMP), the urban
sector is on track to meet the MDG targets since access to improved water supply had
reached 72% and access to improved sanitation had risen to 86% in the year 2008. However,
the sector risks not meeting the rural MDG targets since access to improved water supply was
51%, and access to improved sanitation trailed at 38% in the year 2008. Although the MDG
targets refer to the total population, the discrepancy between the urban and rural sectors is
cause for concern in a country where 70% of the population resides in rural areas.
(ii) According to the World Bank’s Poverty and Environment Report (2009), the cost to
the country of inadequate water and sanitation services is estimated to have been at least
5.6% of GDP in 2006 and possibly as high as 10% of GDP if all costs related to the
detrimental effects of child malnutrition are included. About 30 percent of child mortality
under the age of five has been attributed to inadequate water supply, sanitation and hygiene
which combine to reduce school attendance. Coverage of services is low, and service quality
often does not meet government standards. It is not uncommon for households to receive
non-potable water for only a few hours a day at low water pressure. Lack of funds explains
inadequate disinfection and irregular water quality monitoring. Many households living in
Vientiane capital and the secondary cities have invested in wells and individual water tanks to
supplement public water supplies.
(iii) The Government targets are to provide 24-hour access to safe drinking water for 80
percent of the urban population by the year 2020 and ensure equitable service coverage for all
regions of the country. As for sanitation, on-site1 treatment will be pursued and the
implementation and management of the facilities shall be the responsibility of the individual
owner. To meet these targets, an estimated US$510 million would be required by 2020 to
meet the targets through: (a) providing an additional 1.95 million urban population with water
at an estimated cost of about US$270 million, of which 48% is programmed for Vientiane
capital, 38% for small towns and the 14% for secondary towns and provincial capitals; (b)
urban wastewater investments at a cost of US$140 million of which 54% for Vientiane city,
17% for secondary towns, 8% for provincial capitals, 20% for district centers, and the rest for
capacity building and emerging small towns; and (c) rural water supply and sanitation
investments at a cost of US$100 million. The implied annual investment levels 2011-2020
would be about US$18 million for urban water supply, US$12 million for urban sanitation,
and US$10 million for rural water and sanitation. These annual investment needs could be
compared to historical investment levels of US$8 million for urban water supplies, nil for
urban sanitation, and US$3 million for rural water and sanitation. It is unlikely that past
investment levels could be quadrupled, given that about 90% of past investments were funded
by international donors, and donor financing levels may not be easily expanded.
(iv) It is recommended that the Government focus on actions and reforms in three areas to
improve service quality in existing systems and to expand coverage in urban and rural areas:
1 In urban areas, a large majority of on-site sanitation is composed of pour flush toilets with infiltration pits
(simple or double) although septic tanks are also used. In rural areas, latrines are implemented most of the time.
6
(a) to streamline and make operational the present institutional arrangements and policies; (b)
to increase coverage of water supply services; and (c) to increase revenue collections through
a combination of higher operational efficiency and tariff increases that match improved
service which may also require targeted subsidies for the lowest income households.
(v) The streamlining of institutional arrangements is necessary to use efficiently the
country’s scarce skilled sector staff. First, it is recommended that the Ministry of Public
Works and Transportation (MPWT) become solely responsible for infrastructure
development and that the Ministry of Health (MoH) concentrate on hygiene promotion to
improve health and sanitation practices. The streamlining would give MPWT economies of
scale and the ability to retain and develop skilled staff. By the same token, MoH could
capitalize on its comparative advantages of educating the urban and rural population in safe
habits of water consumption and sanitation habits, including the promotion of rural on-site
sanitation. Second, conditions must be created in the sector to attract private operators whose
main remuneration would best come from improved cash flows. Until policies, practices and
political support allow for financial autonomy of service providers, including the right to
retain funds collected in order to generate financial surpluses from operations, public utilities
will remain inefficient and unattractive for private sector participation. Third, regulation
must be strengthened to monitor the performance of both public and private operators.
Reliable regulation requires validation of the data that service providers furnish to the
regulator, the Water Supply Regulatory Committee (WSRC) and Water Supply Regulatory
Office (WASRO) as its secretariat. Service providers must be trained ingenerating accurate
primary data for calculating performance indicators, and the Regulator must be trained in
validating information received.
(vi) Increasing coverage of water services is the highest priority in order to meet the
population’s basic needs and approach economies of scale that could help financial
sustainability. First, investments must be selected to ensure that scarce funding will result in
the highest possible number of households connected in the short term. The Mini-Rèseaux
d’Eau Potable (MIREP) program for small-scale private operators could guide the drive to
design and invest efficiently but technical specifications might have to be upgraded to ensure
long-term sustainability. MIREP systems are designed to provide 70 lcd of continuous water
services to households with chlorinated water. Second, house connections should be
facilitated by reducing and financing connection charges to allow their full recovery by
spreading them over a longer time period. Third, output-based aid (OBA)-schemes might be
attempted to give incentives to small-scale service providers to connect more households.
(vii) Increasing revenue collections through a combination of higher tariffs and improved
operating efficiency is the third cornerstone towards financial sustainability in the sector. The
majority of NPSEs are not performing well financially despite the fact that government
policy requires them to operate like corporations. NPSEs need internal systems and reforms
that support financial autonomy tied to accountability. Affordability calculations indicate that
tariff levels could rise in real terms. In order to gain acceptance for higher tariffs, they must
be matched by service improvements. In addition, targeted subsidies for both connection
costs and service provision may be required to ensure the poorest could afford services. It
also becomes necessary to educate consumers of the benefits from safe public water supplies
as contrasted to their use of non-potable water sources in order to make them accept higher
tariffs.
7
(viii) Sector reforms are unlikely unless they are supported with rising investment levels.
Three external donor agencies (Asian Development Bank, JICA, and Agence Française de
Development (AFD) have accounted for almost the entire financial assistance over the 1999-
2010 period. Notably, the project levels of financial assistance are projected to drop
substantially from 2010 and beyond worsening the gap between historical averages and
planned investment needs. This highlights the unlikely increase of future investments
necessary to reach the 2020 goals.
(ix) Investment projects should concentrate on (a) raising effective coverage, starting with
providing house connections to already existing distribution networks and educating
consumers in safe practices of drawing water and of sanitation; (b) giving incentives to public
and prospective private service providers to become financially autonomous by allowing
them to retain revenue collected and adopting the principle that the full costs of service
should be recovered from tariffs, starting with recovering the costs of operations and
adequate maintenance; and (c) concentrating on the effective implementation and
streamlining of the existing legislation in order to make for a predictable enabling
environment for public and private service providers. The paper suggests that investment in
Vientiane, perhaps through a public-private partnership model, offers the greatest chance of
helping the Government meets its sector objectives such as higher coverage, efficiency, and
sustainability.
8
LAO PEOPLE’S DEMOCRATIC REPUBLIC
Water Supply and Sanitation Sector Review
COUNTRY CONTEXT
1. Geography and demographics. The Lao People’s Democratic Republic (Lao PDR)
occupies a land area of 236,800 km2
and borders on China, Vietnam, Cambodia, Thailand and
Myanmar. Almost half of its population of about 6 million (2008) are ethnic groups
concentrated in the upland areas. Some 70% of the population is rural, while 17% reside in
larger urban centers and the remaining 13% in small towns. Annual population growth rates
in small towns are reported to be 4 to 5 percent compared to the national average of 2.5
percent. The country is divided into northern, central and southern regions, and has 16
provinces and Vientiane Capital, including 143 districts and more than 9,000 villages. The
five largest urban centers (Vientiane, Luang Prabang, Kaysone Phomvihane, Pakse and
Thakhek) account for some 45% of the total urban population and are all situated along the
Mekong river.
2. Economy. Average annual GDP growth was about 7% from 2006 to 2009. Its low
per capita income of US$740 (2008) defines the country as one of the poorest in East Asia.
Agriculture accounts for 32% of GDP (2009), industry for 28%, and services for the
remaining 40%. The country exports mainly minerals and electric energy following the
successful launch of the Nam Theun (NT) 2 hydropower project. Poverty declined from 33%
in 2003 to 28% in 2008.2
LAWS AND REGULATION, AND STRATEGIES
1.1 Main Laws and Regulations
3. Prime Minister (PM) Decree no. 37 on the Management and Development of Water
Supply and Wastewater Sector, issued in 1999, establishes the key institutions in the sector.
At the central level, the Ministry of Public Works and Transportation (MPWT) is responsible
for urban water supplies. The MPWT mandate includes planning and programming,
mobilizing financing, developing guidelines for design, construction, and operation and
maintenance of urban water supply facilities, and technical assistance to NPSEs. Within
MPWT, this responsibility is lodged with the Department of Housing and Urban Planning
(DHUP), and further delegated to the Water Supply Division (WSD). WSD has currently
nine (9) technical staff and has relied on development partners to help prepare the country’s
urban water supply sector strategy and investment program, and to develop technical
guidelines for the urban sector.
4. PM Decree 37/1999 assigns responsibility for development of urban sanitation to
MPWT. This involves developing the sector strategy, investment plans and technical
regulations relating to urban wastewater and wastewater management in collaboration with
2 Poverty in Lao PDR, 1992/93 to 2007/08, Department of Statistics, Ministry of Planning and Investment,
Government of Lao PDR
9
the Water Resources and Environment Administration (WREA). Within MPWT, the Urban
Development Division (UDD) under DHUP is responsible for this task as well as for other
urban services such as drainage systems and solid waste management. UDD has six (6)
technical staff.
5. The Ministry of Health (MoH), through its National Center for Environmental Health
and Hygiene (Nam Saat), is responsible for rural water services, and for promoting
environmental health and hygiene in urban and rural areas. Its mandate includes planning
and programming, mobilizing financing, capacity building and technical assistance for
community mobilization. Nam Saat has 45 staff with nine (9) technical staff, six (6) medical
doctors, and nurses, laboratory technicians and administrative staff. Its capacity for design
preparation and construction supervision of rural water supply facilities is considered low,
and its effectiveness suffers from limited budgets.3
6. Implementation, operation and maintenance of public water supply systems are
decentralized and reassigned from the former national water utility, Nam Papa Lao, to 17
provincial water utilities (also known as Nam Papa State Enterprises or NPSEs). NPSEs are
supposed to operate along commercial principles, but this rarely happens. The Local
Administration Law created the provincial Urban Development Administration Authorities
(UDAAs) to provide urban infrastructure services, including drainage, solid waste and
wastewater management.
7. The following legislations define sector governance:
Prime Minister (PM) Decree no. 57 on Water Supply Tariff Policy, issued in 2004,
prescribes water tariffs sufficient to ensure financial sustainability of water supply
systems;
The Law on Enterprise issued in 2005 requires NPSEs to be transformed into state
companies with a corporate structure and financial autonomy; and
Prime Minister (PM) Decree no. 191 on the Regulation of Water Supply Operations
from 2005 widens the regulator WASA’s mandate to include private water providers,
in addition to public water utilities.4
8. More recently, the Water Supply Law, enacted in 2009, provides the policy
framework for the water supply sector. The Water Supply Law addresses: (a) the planning,
construction, and maintenance of facilities which are to be according to government technical
standards and regulations and in compliance with water resource and environment related
laws; (b) private sector participation; (c) the establishment of a water supply infrastructure
development fund, and of tariff policies; (d) rights and obligations of service providers and
users; (e) dispute resolution mechanisms; and (f) overall arrangements for sector oversight.
The law is adequate but implementation is still pending since the implementation decree has
not yet been issued.
3 In 2009, the allocation for water and sanitation under the health sector was 1% of the budget (source:
Sanitation Financing Study, Draft, May 2010, WSP Lao office). 4After WASA was reorganized in 2008, the regulator was renamed the Water Supply Regulatory Committee
(WSRC), with the Water Supply Regulatory Office (WASRO), formerly WASA, serving as its secretariat.
10
9. The Water and Water Resources Law of 1996 and the Environmental Protection Law
of 1999 are also relevant. The effectiveness of the Water Resources Law has also suffered
from a lack of implementing guidelines.5 The Environmental Protection Law guides the
preparation of environmental impact assessments of water-related projects.
Urban and Rural Demographics
10. Previously, urban and rural areas were defined administratively rather than by size or
density of population. The Government has now redefined ‘urban’ areas as those with (a) at
least 2,000 inhabitants, and (b) a population density of more than 30 persons per hectare. All
areas with less than 2,000 people are considered rural. Table 1 shows the distribution of
urban areas and small towns based on size of population.
Table 1: Urban Centers by Population Size
Urban Categories Number of
Towns
No. of Piped WS systems as of
2009 managed by NPSEs and
private operators
% of urban
population
Vientiane (>500,000) 1 1
45%
4 secondary towns (20,000-60,000)
Luangprabang, Kaysone Phomvihane,
Pakse, Thakhek
4 4
12 other provincial centers (4,000-
20,000) 12 12 13%
Small towns/districts centers (<2,000 –
15,000) 125 49 42%
Total 142 66a/ 100%
Source: Lao PDR, Private Sector Mapping: Building Consensus, Vientiane, 2004; World Bank, 2007; updated
with information from MPWT
1.2 Water Supply Sector Policy and Strategy
11. The targets of the urban water supply strategy are to provide coverage to 80% of the
urban population by 2020, equivalent to serving an additional 1.95 million people. At
present, there are 76 urban centers without water supply system out of a total of 142 urban
centers (see Annex 1). The 7th
Five-Year National Socio-Economic Development Plan
(NSEDP) for the period 2011 to 2015 assigns priority to piped water and individual on-site
sanitation to achieve the Millennium Development Goals (MDGs). The quality targets are to
provide urban centers and small towns with continuous water supply that meets national
drinking water quality standards with a service pressure of at least 10 meters. Consumers
should be metered and pay tariffs that recover costs, provided the payment is no more than
3% to 5% of average monthly household income. Households are obliged to pay a fee for
connecting to the water supply system. Finally, the service providers, the NPSEs, should
operate as financially autonomous corporations.
5 The implementation decree is expected to include guidelines on allocation of water resources among
competing users including domestic water supply, agriculture (irrigation), and mining and hydropower, as well
as on the determination of raw water extraction charges.
11
12. An urban wastewater strategy and investment plan was prepared in June 2009 and is
currently under consideration by the Government.6 It comprises (a) institutional and legal
reforms; (b) a strategy for improved access to sustainable wastewater through appropriate
technology in wastewater management and appropriate toilets in schools, public markets and
buildings; (c) capacity building and awareness raising at the central and local levels; and (d)
financial sustainability.
Rural Water Supply Strategy
13. The National Strategy for Rural Water Supply and Environmental Hygiene from 1997
envisages improved access to basic water supply facilities but without necessarily connecting
households or providing potable water.7 Sanitation is expected to be in the form of latrines.
In 2004, MoH revised the strategy based on demand and willingness to pay for maintenance
costs. The National Rural Water Supply Strategy comprises best practices, but recent
studies8 have highlighted its poor implementation and lack of sustainability. It is believed
that about half of built systems may be non operational.9 In order to restore service in non-
operational systems, availability of spare parts at the local level must be improved, and
appropriate technical and financial training must be provided to the community-based water
and sanitation committees that manage the systems.
Role of WSRC and WASRO as service regulator
14. Regulation was reorganized in 2008 with the creation of the Water Supply Regulatory
Committee (WSRC) and Water Supply Regulatory Office (WASRO) as its secretariat.10
WSRC regulates both public and private service providers. It is chaired by MPWT’s Vice
Minister and has eight members representing government, the private sector industry,
consumers, and water operators.11
WSRC relies on technical assistance and capacity building
from development partners in undertaking its functions. Annex 2 presents the water sector
organizational chart.
15. WSRC’s regulatory work has focused on tariff reviews and the preparation of annual
performance reports of NPSEs. Tariff reviews are done every two years by WASRO, as the
technical secretariat to WSRC; the first one covering the period 2005 to 2007 and the latest
6 Prepared as part of the National Urban Sector Development Strategy and Investment Plan (NUSDSIP), a
requirement under the National 6th
Five-Year Socio-Economic Plan (2006-2010). Preparation was funded by
Norwegian Agency for Development Cooperation (NORAD), in support of the ADB funded the Northern and
Central Water Supply and Sanitation Project. 7 That is, water quality in rural water supply systems is below national drinking water standards.
8 Lao PDR Sector Review, World Bank, 2007, Final Report: Review of the National Strategy for the Rural
Water Supply and Environmental Heath Sector, Lao PDR, Andy Robinson, UNICEF, September 2009, as well
as based on feedback from sector professionals. 9 In the Lao PDR WSS Sector Review, World Bank, 2007, the estimate was about 30% of rural water supply
facilities being non-operational. 10
By virtue of Prime Minister Decree no. 191 issued in 2005, and MPWT Decisions 13265 and 13266 issued in
2008. 11
The government representatives are DHUP Director, Director of the Business Promotion Office, Director-
General of the Department of Financial Management of State-owned Enterprises, Director-General of Hygiene
and Disease Prevention Department, and WASRO Director. Private sector industry is represented by the
Chamber of Commerce and Industry. Customers are represented by Women’s Union (although current
representative is also DHUP Deputy Director). Water operators are currently represented by Vientiane CC Nam
Papa.
12
for the period 2008 to 2010. These reviews currently cover only NPSEs. The preparation of
annual performance reports began in 2000 and covers only NPSEs; plans to include private
providers are underway. The quality of data from NPSEs has been questioned by WSRC and
WASRO themselves as they acknowledge that NPSEs have a serious lack of understanding
of the reporting requirements which often lead to inconsistencies and errors in data
submissions. Also, analyses on performance are based on unaudited/unverified data provided
by NPSEs.
16. WSRC is currently developing five performance guidelines and two standard
agreements to improve monitoring and regulation of water utilities. The performance
guidelines cover (a) compliance monitoring and performance auditing, (b) regulation for non-
payment customers, (c) enforcement of payment by customers including service
disconnection procedures, (d) water leakage detection and management, and (e) formulation
of an action plan and regulatory reports. The standard agreements are for (a) water supply
operation license setting out the obligations of water service providers including defining
service areas, service standards, etc., and (b) performance targets. These performance
guidelines and standard agreements have yet to be issued to the public. A major concern of
WSRC and WASRO is the lack of capacity of its staff and those of the NPSEs, and
eventually private providers subject to WSRC regulation, to undertake their respective
functions and responsibilities.
Role of provinces and districts
17. Provincial governors are in charge of all provincial affairs in their province.12
With
regard to water and sanitation, the provincial Department of Public Works and Transportation
(DPWT) and provincial office of Nam Saat are responsible for planning and coordinating the
implementation of programs and projects. Provincial authorities give the final approval of
tariffs prior to their implementation and issue licenses to private operators without necessarily
securing approval from central authorities. DPWT and the provincial Nam Saat offices have
one to two staff each to deal with water supply. The DPWT staff help WSRC and WASRO
execute its functions at the local level. Annex 3 shows the linkages between central and
provincial government institutions.
Investment Financing
18. Urban water supply. The government, official development assistance (ODA) and
foreign NGOs finance investments and technical assistance in the urban water supply
sector.13
For the period 1999 to 2014, total funding commitments amount to about US$125
million, or an average of about US$8 million a year. Of this amount, 97% were funded by
development partners and the remaining 3% by provincial governments (see Figures 1 and
2). In terms of distribution across provinces, more than 40% was invested in projects
benefiting Vientiane province (both the city and surrounding areas) and the rest in secondary
12
The objective of the policy on decentralization is to transform the provinces into strategic units, the districts
into planning and budgetary units, and the villages into implementing units. Provincial administration officials
are appointed by the central government. 13
Main donors are ADB, Japan, France, Germany, UNDP, UNICEF, EU, Norway, World Bank, Sweden, UK,
Belgium and recently, South Korea.
13
cities and small towns. Government in kind counterpart funding normally complements
foreign funding.
Figure 1: Investments in Urban Water Supply 1999 – 2014
Source: WSD, DHUP, MPWT
Figure 2: Investments in Urban Water Supply by Source of Financing (1999 – 2014)
Source: WSD, DHUP, MPWT
19. Private sector investment is minimal. The only official program on private sector
participation is the MIREP Programme (Program for Small Scale Water Supply Systems),
launched in 2004. This Programme involves provision of urban water supply in small towns
14
not currently served by NPSEs. It has so far mobilized US$1.2 million in financing from
foreign non-government sources, private investors and household beneficiaries (see Box 1).
Sustainable private sector participation will remain limited until such a time that incentives
for prospective private operators improve with emphasis on creating sustainable financial
autonomy. This will also require stronger tariff policies, predictable laws, access to credit,
and perhaps targeted subsidies to the poor.
20. Urban sanitation. In urban areas, the majority of on-site sanitation is composed of
pour flush toilets with infiltration pits (single or double) although septic tanks are also used.
Practically no investments have been made by the government in sewerage and wastewater
treatment plants, save for a few kilometers of sewerage pipe and a stabilization pond in
Vientiane city.
21. Rural water supply and sanitation investments amounted to about 230,000 million
kip (US$27.5 million) in the 2000-2009 periods, or an average of US$2.7 million a year (see
Figure 3). The water supply share was 80% and the sanitation share 20%. About 65% were
funded by development partners, 25% by households and 10% by government both at the
central and local levels (see Figure 4).
Figure 3: Capital Expenditure for Rural Water Supply & Sanitation, 2000 – 2009 (in US$ m)
Source: Central Nam Saat
Box 1: The MIREP Programme
The MIREP Programme pilots Public-Private Partnership (PPP) schemes in water and sanitation
services. Financial support is provided by donor organizations with technical assistance by the Group
of Research and Technological Exchange (GRET), a French based professional cooperation
organization. So far MIREP has funded eight small towns in Vientiane and Bolikhamsay provinces.
Total investments mobilized under the Programme are about US$1.2 million, of which MIREP
subsidizes 20%, private sector investment is 60% and consumer connection costs the remaining 20%.
Of the private sector investment, 85% is equity invested upfront and the remaining 15% is financed by
credit guaranteed by the provincial government with Vientiane NPSE. Phase 3 is being designed based
on lessons learned from the earlier phases.
15
Figure 4: Capital Expenditure for Rural Water Supply & Sanitation, 2000 – 2009 (in %)
Source: Central Nam Saat
22. Urban water supply operations. NPSEs operate almost 150,000 urban water supply
connections (2008), serving about 14% of the country’s population.14
NPSE assets are owned
by the provincial governments. Each NPSE is headed by a managing director appointed by
the provincial governor and governed by a Water Administration Board which is composed
of government representatives and civil society groups representing consumers.15
23. The Enterprise Law requires NPSEs to register as state companies and reach financial
autonomy, but this has not happened in practice. NPSEs remain dependent on government
operational and investment subsidies. NPSEs usually remit their revenues to the provincial
treasury which reduces incentives for NPSE management and staff to improve performance
since the benefits from better performance do not accrue to the NPSEs but rather to the
provincial government. Allowing service providers the right to retain whatever revenue they
manage to collect is a prerequisite for improving performance and attracting private
operators. The Asian Development Bank (ADB) is assisting a selected number of NPSEs in
setting up financial management systems in the areas of billing and collection, accounting,
stock inventory management and depreciation of accounts, and the preparation of three-year
rolling corporate plans.
24. NPSEs follow government administrative procedures, such as government
remuneration policies, which make it difficult for NPSEs to attract capable personnel, all the
more since there is a dearth of professional staff in the country to start with.
14
Based on data provided by MPWT. 15
Specific representation is as defined in the Enterprise Law.
16
25. Private water providers serve only a small segment of the market but might be scaled
up in the future. In the eight MIREP schemes, about 30,000 inhabitants are projected to be
served. Private operators under this Programme are mainly local private construction
companies. Reportedly, small scale private piped water supply systems barely break-even.16
26. Urban sanitation operations. The country has no operational urban sewerage system
or wastewater treatment plants at present, although one MIREP sanitation project and two
UN Habitat projects are under construction. It is not yet clear how the sanitation projects will
be operated, once commissioned.
27. Rural water supply operations are operated and maintained by village water and
sanitation committees. The Nam Saat program requires the creation of Watsan committees
that are headed by the village chief with members appointed by the latter, or directly elected
by the communities. In general, capacity is low with no technical support provided after
commissioning.
1.3 Current WSS Models in Practice in the Lao PDR
28. The government has been piloting alternative management models for water supply
and wastewater systems, some of which represent hybrids of public and private involvement.
The experience from such pilot schemes are fully analyzed in Annex 14 and are summarized
as follows:
Vientiane capital
29. Vientiane capital’s water supply system (75,000 connections) is run by the capital
water supply state enterprise (Nampapa Nakhon Luang - NPNL) but presents interesting
combination of different investment and management systems. NPNL is supported by foreign
investments (JICA, AFD, ADB) but has also mobilized a local private loan to finance the
expansion of a water treatment plant. NPNL is also the first state enterprise in Lao PDR to
implement a Build-Operate-Transfer (BOT) model in order to meet the industrial and
commercial demand through a Lao-Vietnamese joint venture for a 20,000 m3/day water
treatment plant in a greenfield industrial zone. The BOT Company sells water to NPNL,
based on an agreed cubic meter tariff (1,270 kip/m3) and the contractually agreed average
water needs/ production capacity of the plant.
Kaysone Phomvihane Town
30. The Savannakhet provincial water supply state enterprise (NPSE – SVK) is currently
exploring, through a provincial government initiative (MOU signed), the possibility of a joint
venture with a Malasian investor in order to finance investment around US$15 million. The
water supply system would be operated by the investor, and profits would be shared in
proportion to the investments made. The private investor is scheduled to finance 75% of
costs.
16
Annex 14 provides details on the different delivery models applied in Lao PDR
17
Pakse Town
31. Champasack provincial water supply state enterprise (NPSE – CPS) is exploring the
possibilities of attracting investors to finance additional water production works. These
investors may enter under models such as BOT, Joint ventures, and with foreign grant.
Community managed systems with NGOs
32. In 2004, three villages, Phine district, Savannakhet province were provided with piped
water supply systems (boreholes, elevated tanks, pipes distribution system). A French NGO
provided design, management training and funding. The three villages are located in the same
poor district (Phine) and have around 1,000 inhabitants each. The systems are fully operated
and managed by a committee appointed by the head of village. Connections are metered with
a uniform water tariff. Local authorities are involved through the district as tax collectors.
However, the three systems do not seem to be sustainable, because of low tariffs, high
material costs and very low consumption levels. Insufficient water resources have created
shortages of water in two of the three villages. The management committee does not seem
accountable to the communities.
Community financed assets
33. Nathad village (Outhoumphone district, Savannakhet province), with around 1,000
inhabitants, is an example of four villages which benefited from a loan provided by the local
Thad-inghang temple. The loan, made in 2003 and repaid in 2005, financed wells, pumps,
elevated service reservoirs and a distribution system. The loan was reimbursed through
connection fees from the benefiting households. The system is managed by a committee
elected by the community, outside of head of village’s authority. The tariff level was adopted
by the villagers themselves. The system is sustainable, although it doesn’t produce any profit.
Water resources were poorly assessed and there are water shortages during protracted dry
spells.
MIREP schemes with Private Assets combined with External Grants
34. The MIREP schemes allow private investors to support water schemes under a BOT
contract signed with the district governor’s office. The project supports 25% of total
investment besides design, business plan elaboration and three years technical assistance.
MIREP systems are fully operated by the contractor with tariffs based on surveys to assess
affordability and willingness to pay. Initially the systems have been sustainable, but require
long-term sustainability since private investments will only be recovered over 14 years as
expected.
The Poverty Reduction Fund Program
35. The Poverty Reduction Fund (PRF) Program has World Bank funding and an
independent organization with a direct line of communication to the Prime Minister’s office.
The project is demand driven and provides funds at the Zonal level. Community
contributions, in kind or in cash, finance an average 30% of investments. The water assets
(comprising small gravity fed systems, piped networks, wells and boreholes) are managed by
a water committee under the village head. The community supports the entire cost of the
18
distribution system. However, the PRF systems are reportedly not sustainable because of the
very low tariffs. They also suffer frequent breakdowns due to lack of spare parts.
Common Problems with the Systems Surveyed
36. Without external subsidies, water schemes cannot generate profits and therefore fail to
attract private investors. Water resources seem to have poorly assessed in most schemes. The
MIREP project seems to be the most successful PPP project implemented in Lao PDR but
illustrates the weaknesses of local financing for water supply schemes. The availability of
spare parts seems to be a general problem in rural areas.
SECTOR PERFORMANCE
2.1 Access
37. Coverage for water and sanitation.17
The WHO-UNICEF Joint Monitoring
Programme (JMP) considers Lao PDR to be on track to meet water and sanitation MDG
targets in urban areas but off track in rural areas.18
It is believed that meeting the MDG
targets for water and sanitation can be achieved, although it would still leave 31% of the total
population without clean water supply and 46% of total population without access to basic
sanitation by 2015 (see Table 2).
Table 2: UN Coverage Estimates of MDGs for Water and Sanitation
Population (in ’000)
Population using improved
drinking water sources
Population using an improved
sanitation facilities
Year Urban Rural Total Urban Rural Total Urban Rural Total
1990 649 3,558 4,207 - - - - - -
1995 836 3,973 4,809 78% 37% 44% 56% 10% 18%
2000 1,187 4,216 5,403 77% 40% 48% 62% 16% 28%
2005 1,610 4,270 5,880 74% 47% 54% 77% 30% 43%
2008 1,915 4,290 6,205 72% 51% 57% 86% 38% 53%
2015 2,732 4,296 7,028 69%* 63%*
* MDG estimates are based on the Joint Monitoring Programme 1995 coverage estimates
Source: WHO/UNICEF Joint Monitoring Programme for Water and Sanitation
17
The MDG for water aims to halve by 2015 the proportion of people without sustainable access to safe
drinking water in 1990. The MDG for sanitation aims to halve by 2015 the proportion of people without
sustainable access to basic sanitation in 1990. The Joint Monitoring Programme measures coverage as (a) the
proportion of population with sustainable access to an improved drinking water source, urban or rural; and (b)
the proportion of population with access to improved sanitation, urban and rural. Improved drinking water
sources, in turn, are defined as the population with (i) piped water into dwelling, plot or yard; (ii) public tap or
standpipe; (iii) tubewell or borehole; (iv) protected dug well; (v) protected spring; and (vi) rainwater collection.
Improved sanitation facilities are defined as (i) flush or pour-flush to (i) piped sewer system; (ii) septic tank; (iii)
pit latrine; (ii) ventilated improved pit latrine; (iii) pit latrine with slab; and (iv) composting toilet. As a
consequence, MDG coverage comprises a wide range of service levels of varying convenience and benefits to
individual consumers and to a community.
18
MDG Road Map for Lao PDR, WHO and UNICEF, February 2010
19
38. Since the year 2000 access to improved drinking water sources19
has decreased in
urban areas but risen in rural areas. In terms of piped connections to households, there is an
increasing trend in urban areas but decreasing in rural areas, and still at very low levels in
both urban and rural areas (see Table 3). This shows that there are significant needs in both
urban and rural areas in terms of providing safe and reliable water through piped water
supply systems.
Table 3: Access to Household Connections and Improved Drinking Water Sources
Urban Rural
Year Total Household
connections
Other improved
sources Total
Household
connections
Other improved
sources
1990 - - - - -
1995 78% 30% 48% 37% 5% 32%
2000 77% 35% 42% 40% 5% 35%
2005 74% 48% 26% 47% 4% 43%
2008 72% 55% 17% 51% 4% 47%
Source: Joint Monitoring Programme, WHO and UNICEF, March 2010
39. The Government estimates that dry season access to safe water source almost doubled
between the period 1992/93 to 2007/08, from less than 40% of the population to over 70% for
the entire country.20
Big improvements have been made in the poorest districts and across
ethnic groups (Annex 4). As shown by the UN and government estimates, government
subsidies for water are regressive, since they favor those already connected who tend to be
wealthier than poor unconnected households. On average, NPSEs serve 69% of the
population within their service areas (2008) which is confined to the core urban centers but
only 12% when compared to provincial populations and 14% of the country’s population
(Annex 6). Coverage of piped water supply in Vientiane capital utility is 80% of its existing
service area which in turn covers 50% of the entire city, i.e. 40% of the entire city has water
supply networks.
40. Access to improved sanitation has risen in both urban and rural areas. Coverage in
2008 for improved sanitation is estimated at 86% in urban areas and 38% in rural areas.
Open, unsanitary defecation is still being practiced by 52% of the rural population (Table 4).
The government estimates that access to improved sanitation rose from 50% in 1992/93 to a
little over 60% in 2007/08, which lags the MDG targets. (Annex 5).
Table 4: Sanitation Coverage (%) Urban Rural
Year Improved Shared Unimproved Open
defecation Improved Shared Unimproved
Open
defecation
1990
1995 56 3 11 31 10 1 8 81
2000 62 4 8 26 16 1 8 75
2005 77 5 5 13 30 2 7 61
2008 86 5 3 6 38 2 8 52
Source: Joint Monitoring Programme, WHO and UNICEF, March 2010
19
Improved drinking water sources refer to household connection, public standpipe, borehole, protected dug
well, protected spring, bottled water and rainwater collection. Unimproved drinking water sources are
unprotected well, unprotected spring, vendor provided water and tanker truck water. 20
Poverty in Lao PDR, 1992/93 to 2007/08, Department of Statistics, Ministry of Planning and Investment,
Government of Lao PDR
20
41. The cost to the country of inadequate water and sanitation services is estimated to
have been at least 5.6% of GDP in 2006 and possibly as high as 10% of GDP if all costs
related to detrimental effects of child malnutrition on cognitive development and education
outcomes as well as increased risks of respiratory illness transmission and child pneumonia
are included.21
The health costs comprise diarrheal morbidity and mortality and the effect of
diarrheal infections on malnutrition in young children and consequent increases in child
mortality and morbidity. About 30 percent of child mortality under the age of five has been
attributed to inadequate water supply, sanitation and hygiene. The lack of water and
sanitation also reduces school enrolment.22
2.2 Quality of services
42. Urban water supply service quality generally does not meet government standards. It
is not uncommon for households to receive non-potable water for only a few hours a day at
low water pressure. Lack of funds explains inadequate disinfection and irregular water
quality monitoring. Many households living in Vientiane capital and the secondary cities
have invested in wells and individual water tanks to cope with intermittent water supply and
low pressure.
43. With regard to privately managed systems under the MIREP, the first one was
commissioned in 2006, and performance is still tentative. In terms of design of the water
supply systems, distribution pipeline networks are designed to respond to water demand for
90% of the population in the service area in 15 years, and the transmission lines and main
pipes for 100% of population in 25 years. Systems are designed to provide continuous water
services to households with chlorinated water. Minimum water pressure is five meters at the
most distant points of the network, i.e. below the government standard of at least 10 meters.
44. For small scale, unregulated privately provided systems water supply service is
reported to be 24 hours a day. However, in practice wells often dry up periodically. Water is
rarely potable but households buy bottled water for drinking. Water pressure is between 5
and 10 meters.23
In rural areas, the objective is to bring water closer to communities
through gravity fed systems, spring catchments, and boreholes. However, quality of services
is generally below what is defined as safe and reliable water supply.
Sanitation
45. Sanitation facilities in urban areas are mainly on-site, built by households, but the
design and construction of septic tanks are unregulated, and septic tanks are not regularly
desludged. The practice could pollute the ground water from which the community draws
water.24
Sludge disposal is normally untreated in rice fields and open spaces and is not
regulated.
21
Poverty and Environment Report, World Bank, 2009 22
Final Report: Review of the National Strategy for the Rural Water Supply and Environmental Heath Sector,
Lao PDR, Andy Robinson, UNICEF, September 2009 23
This is based on information from the case studies in Annex 14 24
A rapid assessment of household sanitation facilities in Vientiane was carried out with assistance from WSP
in 2010.
21
Efficiency
46. Non revenue water (NRW) is estimated as 23% (2008) on average. The low NRW
might be explained by the fact that water supply systems are relatively new (Annex 7).
However, WSRC reports that daily water losses per connection among NPSEs rose from 193
liters in 2007 to 233 liters in 2008. Vientiane loses three times as much, or 600 liters per day
per connection. As a consequence, WSRC has raised doubts on the accuracy and reliability
of NRW data since NPSEs do not meter production and lack the technical capacity to monitor
NRW. Private and community managed village water supply systems generally do not have
production meters, and NRW cannot therefore be measured.
47. Staff productivity is measured in terms of number of staff per thousand water
connections. WSRC estimates staff productivity ranging from 4.2 to 17 in 2007 and from 7.6
to 28.5 in 2008. International benchmarks are2 staff per thousand connections, although such
high productivity includes much outsourcing. Only six NPSEs improved productivity while
11 worsened (Annex 8). The MIREP schemes have two to three staff managing the water
supply schemes with an average 500 connections, or about 5 staff per thousand connections.
Small privately or community-managed systems have about five staff managing systems with
100 to 200 connections. A critical issue is the low skills level of staff.
48. Collection efficiency is measured by WSRC in terms of the level of accounts
receivable, expressed in days of average turnover. Accounts receivable were 113 average
turnover days in 2008 (Annex 8) compared to a WSRC target of 60 to 90 days. A major
factor contributing to low collection efficiency is the difficulty to collect water bills from
government institutions. In rural water supply schemes, money is only collected when there
is an acute need for money for repairs. Allowing service providers the right to retain whatever
revenue they manage to collect is the starting point for improving the collections efficiency.
Profitability
49. WSRC measures profitability in terms of return on net assets. In general, NPSEs have
not been profitable. The average return on capital employed in 2008 was negative 1.4%, an
improvement over 2007 of negative 2.7%. Of the 17 NPSEs, only five had slightly positive
returns. In contrast, cash flows have been positive but at the price of deferred maintenance.
This practice will produce premature deterioration of assets which costs more than
appropriate maintenance. Financial working ratios, that is, the proportion of cash operating
expenses to cash operating income, range from 0.52 (Savannakhet) to 0.92 (Luangnamtha)
and average 0.68, but the high ratios are likely explained by inadequate maintenance. The
international benchmark for working ratio is 0.50. Only five NPSEs fully recovered
depreciation costs in 2008 (Annex 8). The MIREP schemes seem to be more profitable than
NPSEs. 25
2.3 Tariffs
50. Urban water supply. About half of the NPSEs charge uniform rates and half slightly
increasing block rates (Annex 9). Average tariff levels are LAK 2,350 (US$ 0.29) per cubic
meter but the average hides substantial differences between provinces. The official tariff
25
See MIREP Financing Policy Review – Final Report, MIREP Laos, October 2009
22
policy is to recover operation and maintenance costs as a minimum, plus an increasing
portion of depreciation depending on affordability and willingness to pay. All NPSEs have
long term debt (Annex 10). To reach full cost recovery WSRC estimates that tariffs would
need to increase by 20% on average in real terms, and another 35% to achieve real return on
capital of at least 5%. Connection charges normally range from US$50 to US$60 but reaches
US$150 in Vientiane.
51. Every two years, WSRC recommends an average tariff for each NPSE subject to final
approval by the respective provincial authority. On the basis of the recommended tariffs by
WSRC, NPSEs recommend the tariff structure and present it to the provincial authorities for
final approval.
52. For MIREP schemes, the tariff policy is to recover operation and maintenance costs,
the private investment and produce a rate of return of 10%. The subsidy from MIREP is not
recovered. Typical water tariffs are about 2,200 kip per cubic meter for domestic users and
2,500 per cubic meter for non domestic users. MIREP schemes charge a minimum
consumption per month of three cubic meters as compared to 10 cubic meters in some
NPSEs. An additional fixed amount is charged as ‘maintenance fee’, which equals in most
cases so far to 1,860 kip per month per connection. The connection charge is 500,000 kip, or
about US$60. Tariffs are designed to be adjusted annually for inflation starting within two
years from commencement of the concession contract. However, some concessionaires have
deferred tariff increases to encourage consumers to connect. Connection fees can be paid in
installment. Identified poor households are connected for free and financed by the MIREP
grant.
53. In privately managed rural systems in rural areas, the private owners set tariffs and
connection fees at a level sufficient to recover their investment and operating costs. For
community provided and managed systems, tariffs are agreed between the Watsan
committees and the beneficiaries to cover operating costs, depreciation and return on
investment. No fee is charged for connections.
54. Sanitation. One of the most adverse impacts accompanying the advancement in
economic growth, industrialisation, and urbanisation is the increasing rate of wastewater
generation. In general, urban wastewater management falls under the responsibility of the
Urban Development and Administration Authority (UDAA) and 12 other districts/small
urban towns. In the case of Vientiane capital, the government has provided subsidies for
wastewater management. The arrangement is that Nam Papa Na Khone Luang deducts the
amount of Kip 112,152,000 per month (56,076 water meters at a flat rate of Kip 2,000 per
meter per month) from its payable turnover tax and remits the same amount to the Vientiane
Urban Development Administration Authority (VUDDA)26
. However, in some provinces the
wastewater management cost is charged directly to consumers by applying a flat rate of 1,000
Kip per month per water connection. Desludging costs about 300,000 kip per trip by private
companies. The tipping fee to dispose of sludge in a landfill costs about 30,000 kip per
truck.27
26
Base on the Prime Minister’s Decision number 052/PMO, dated 25/5/2009. 27
Data for Xay district in Oudomxay province.
23
2.4 Affordability
55. The average NPSE tariff is 2,350 kip (US$0.29) per cubic meter. In 2008 all
provincial service providers had financial working ratios (the ratio between cash operating
costs and cash operating revenue collected) below unity indicating that most can be assumed
to cover the cash operating costs with revenue collected. However, financial working ratios
can look deceptively good if utilities do not spend sufficient amounts for maintenance.
Assuming an average consumption level per household of about 20 cubic meters per month,
the average monthly water bill is close to 50,000 kip, or about 2% to 3% of the average
monthly household income. The moderate portion would indicate there is room for tariff
increases to match service improvements. It is not uncommon though for households to
purchase bottled water for drinking and to maintain private wells and storage to cope with
intermittent service and low pressure. These represent additional costs to the households and
could amount to as much as 50,000 kip a month, doubling water expenditures and increasing
the percentage to household income to about 4% to 6%. In some areas without a water
supply system, non domestic users pay as much as 8,000 kip (US$1) per cubic meter for
untreated water from rivers.
56. The MIREP varies the level of grants to strike a balance between affordability and
return of investment of the concessionaire. Based on a sample of cases of other private and
community managed piped water supply systems, tariffs range from 1,000 to 2,000 kip per
cubic meter for domestic users and 2,000 to 3,000 kip per cubic meter for businesses.
Consumption ranges from 12 to 58 liters per capita per day and the monthly water bill is
about 2% to 5% of household income.28
INVESTMENT PRIORITIES AND FINANCING
57. Urban water supply. The thrust of the government program to supply water to 80%
of the urban population by 2020 is threefold: (a) to invest in those small district centers that
do not have a piped water supply, (b) to invest in special small district centers such as border
posts, and (c) to continue to invest in Vientiane capital city, the four secondary towns and the
provincial centers to keep pace with demand. With an additional 1.95 million population
(Table 5) estimated to be served at an average of US$135 per capita, the urban water supply
investment needs for the period 2005 to 2020 are estimated at US$267 million, of which 48%
is programmed for Vientiane capital, 38% for small towns and the remaining 14% for
secondary towns and provincial capitals (see Table 6).
28
See case studies in Part 2 of this study.
24
Table 5: Urban Water Supply Targets – Coverage & Population Served (2004 – 2020)