PROJECT INFORMATION DOCUMENT (PID)

APPRAISAL STAGE

Report No.: AB683

Project Name

/ Lesotho Water Sector Improvement Project
Region / AFRICA
Sector / Water supply (100%)
Project ID / P056418
Borrower(s) / GOVERNMENT OF LESOTHO
Implementing Agency / Office of the Commissioner of Water
Attn.: Mr. E. M. Lesoma
P.O. Box 722, Maseru 100
Lesotho
Telephone: 266 22 312449
Fax No.: 266 22 310437
Email:
Water and Sewerage Authority (WASA)
Attn.: Mrs. R. Tlali
P.O. Box 426, Maseru 1000
Lesotho
Fax No.: 266 22 31006
Email:
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Environment Category / [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined)
Safeguard Classification / [ ] S1 [X] S2 [ ] S3 [ ] SF [ ] TBD (to be determined)
Date PID Prepared / March 16, 2004
Date of Appraisal Authorization / March 17, 2004
Date of Board Approval / June 17, 2004
  1. Country and Sector Background

Lesotho, with a population of about 2 million, has experienced substantial internal migration resulting in an enormous growth in urban population over the last few years. Between 1996 and 2003, the population in Maseru alone grew from 200,000 to over 300,000 or about 7% per year. Over the next three years another 65,000 people are expected to move into the city. The increase in population, due mainly to rural migration, is driven by the rapid industrialization of Maseru and urban towns through the establishment of garment factories. Approximately 35,000 jobs were created since the early 1990s. In Lesotho, the urban population is concentrated in the Lowlands area, particularly along the Mokokare River, which is the border with the Republic of South Africa (RSA). This growth has placed a heavy social obligation on the Government of Lesotho (GOL) for the provision of adequate urban services, particularly water and sanitation. At present 50% of Maseru’s residents do not have access to an adequate water supply, though sanitation provision is higher at about 65% due to a successful program of on-site sanitation, mainly pit latrines. Together the increased industrial demand from “wet” industries (mainly textile processing) and increased consumer demand for potable water have put a heavy burden on water supply and waste water services.

The water sector plays a dominant role in Lesotho’s economy. The large Lesotho Highlands Water Project is now in the final stages of its first phase of implementation and will provide 17m3/sec of water to RSA. Revenues from the export of water and multiplier effects from the project contribute approximately 5 % of Lesotho’s annual GDP. However the situation in the Lowlands and the effects of water shortages on the well-being of the people of Lesotho have not been ignored. Studies undertaken since the mid 1990’s have predicted the rapid urbanization of the Lowlands and increased industrial development---- though not to the extent that actually took place. Water supply shortages in Maseru are now common. Drought conditions have occurred several times over the last ten years with 2003 being the most dramatic, requiring emergency releases from the Highlands Project in order to provide a minimum amount of water to avoid a crisis in Maseru.

  1. Objectives

The project development objective is to support the vision of the Government of Lesotho to secure adequate, sustainable, and clean water supply and to support adequate sanitation services for consumers living in the Lowlands areas. This objective will be accomplished through an APL in two phases. In the first phase, this objective will be reached by: (a) supporting the implementation of the 1999 Water Resource Management Strategy and its related institutional sector reforms; (b) providing for capacity building to ensure sector policy formulation is coordinated with proposed sector legal and regulatory utility reforms; (c) providing for new management mechanisms that promote commercial incentives in the main sector utility - WASA; and (d) financing needed infrastructure for augmenting urban water supply in Maseru with a particular emphasis on high growth peri-urban and industrial areas. A key outcome of this phase includes an improved institutional framework that will support the implementation of reforms as outlined in the 1999 Policy, with the clarification of the roles of the main institutions in the sector as to service provision, regulation and policy making. Utility performance will improve to provide better services through a Performance Agreement with specific audited and publicly available indicators as well as support to system expansion. These reforms will set the stage for Phase II of the APL. This phase will be focused on augmenting the bulk supply for the Lowlands that will directly address current severe water scarcity. Phase II is timed to take advantage of the current detailed studies supported by GOL and the EU that will determine the optimized long term solution.

The successful implementation of the project will create the sector-wide policy and regulatory framework needed to secure adequate, reliable and affordable water supply and sanitation services, improve governance and autonomy for the provider of these services, and to provide for good water resources management practices to empower the GOL to make choices that will result in adequate supplies over the long termAccess to water is a critical factor in Lesohto’s Poverty Reduction Strategy Paper (PRSP), 2003. The proposed project will support the GOL’s policy of directing efforts towards developing sources to supply the fast growing urban areas of the Lowlands. A high priority is to provide water to “wet industry zones” as well as to support a policy and incentive structure to encourage all new industrial estates to have built-in water recycling measures. Further, the unreliability of urban potable water supply presents a disproportionate burden on the poor who are more likely to pay higher rates for water through informal markets -- paying over ten times the lowest WASA tariff for those who have a house connection. Over the medium term, the most effective strategy for helping the poor is to expand both the present formal system as well as informal systems with particular emphasis on extending the water supply and appropriate sanitation services to peri-urban and unserved neighborhoods. The proposed project supports this effort both with expansion of the distribution system as well as support to community schemes.

  1. Rationale for Bank Involvement

The project will directly build on the GOL’s 1999 Water Sector Policy in reforming the sector with particular attention to water supply and water resources issues. The Bank has direct experience of the sector from its long involvement in the Lesotho Highlands Water Project. IDA recognized that political and social issues would arise due to water scarcity in the Lowlands, while the concentration of activity remained in the Highlands.

IDA has benefited from efforts of other donors working in the sector in the preparation of the project. The Department for International Development (DFID) of the United Kingdom supported long-term TA for WASA in the areas of institutional, technical and management capacity building that laid a foundation that enabled progress to be made on the Performance Agreement. The EU is supporting work through WASA for augmentation of water and sanitation services to six Lowlands towns (excluding Maseru) which contributes greatly to better provision of services in the Lowlands. It is also heavily involved in supporting a large feasibility study for the future longer term water supply solution for the Lowlands. The importance of the findings of this study and the investment program it represents is critical as it will be the framework for provision of adequate bulk supplies of water for the Lowlands for the next 20 years. Other measures can only relieve the scarcity situation in the near term.

  1. Description

The APL (FY05-11) has two phases. Phase I has a total cost of US$ 15 million equivalent of which IDA will finance US$ 13.5 million and the Government will contribute US$ 1.5 million. This phase has three components as detailed below. Phase II has an estimated total cost of US$25 million. Total project cost is US$ 40 million.

Phase I: US$ 15.0 million (FY05-07):

§  Component 1: Policy Implementation and Capacity Building in the Ministry of Natural Resources (MNR) (US$3.0 million). This component will focus on the implementation of the recent institutional changes undertaken within the Ministry of Natural Resources as recommended under the 1999 Policy. It will provide support for policy analysis and capacity building for the newly established Commissioner of Water and the Policy, Planning, and Strategy Unit (PPSU).

§  Component 2: Augmentation and Extension of Maseru Water Supply (US$ 10.0 million). The component would include selected civil works to augment water treatment and extensions to the distribution system of about US$ 8.7 million. It would also support a Performance Agreement between the Water and Sanitation Authority (WASA) and the GOL for about US$1.3 million. This agreement is aimed at strengthening the commercial, financial and technical operations of the utility as well as its autonomy and accountability.

§  Component 3: Maseru Community Water and Sanitation Program (about US$ 2.0 million). This component is designed as a pilot to provide an opportunity for the stakeholders involved (WASA, Maseru City Council, Ministry of Local Government, DRWS, DWA) to test different service options and delivery mechanisms for the delivery of water to six peri-urban communities. A number of different service delivery options (for example, handpumps for the very poor, shared standposts, kiosks, and coupon systems) would be implemented and evaluated.

Phase II: US$ 25 million (FY 08-11):

Phase II will support the longer term water supply solution which is likely to include large civil works, as well as support to distribution network expansion, assistance to the continued reforms within the sector and scaling up community water supply systems.

  1. Financing

Source: / ($m.)
BORROWER/RECIPIENT / 1.5
INTERNATIONAL DEVELOPMENT ASSOCIATION / 13.5
Total / 15.0

Retroactive financing is being considered for the project.

  1. Implementation

The project is designed to be implemented by two executing agencies: COW and the PPSU under the MNR for Component 1 and WASA for Components 2 and 3. These respective agencies have established Project Management Units (PMUs) which will be responsible for procurement and financial management aspects of their respective components. It is envisioned that each agency will have a Special Account that will be administered according to the Bank’s rules and regulations.

Given the current institutional ambiguity of responsibility for peri-urban water supply, the Community Water and Sanitation Program (CWSP) would include a multi-stakeholder Steering Committee headed by WASA with representation of PPSU, Ministry of Local Government, Maseru City Council, DRWS and others with a stake in the peri-urban water and sanitation sector.

  1. Sustainability

The project undertakes to provide investments and support the sector reform agenda that will increase the availability of potable water in Maseru and the Lowlands generally over the long term. The GOL has been working towards this objective for several years. The COW and the PPSU, which will serve as the interlocutor between the project and GOL on the policy agenda, have recently been established to spearhead the reform of the sector and oversee the revision of fundamental legislation including those that cover water resources and water service provision. Acknowledging the need for more accountability and autonomy in the delivery of sector services, the GOL, represented by the Ministry of Finance, has initialed the Performance Agreement with WASA signaling the GOL’s support at the highest level for more transparent and better governance, and more productive utility services.

  1. Lessons Learned from Past Operations in the Country/Sector

§  Need for an effective champion: Leadership for sector reform needs to be established. For the WSIP, this has been taken up by the newly created COW and his supporting policy unit, the PPSU. The COW is spearheading the implementation of the institutional restructuring of the sector, is undertaking the revision of legal frameworks and the creation of appropriate institutional structures and coordination mechanisms to delineate more clearly the policy making, regulation, and line or service delivery functions.

§  WSS operational autonomy and cooperate governance is critical for success: The introduction of a Performance Agreement between WASA and GOL (represented by the Ministry of Financing and Planning) is a major step toward a more autonomous water utility where performance outcomes as set out in the contract will be reviewed annually by independent auditors and will be available for public review. The Performance Agreement has been initiated by both WASA and the GOL represented by the Ministry of Finance and Planning. This should set the stage for a progression to more autonomous operation and the beginnings of a more transparent regulatory process. The audits will be procured and published by the COW. This is expected to result in the development of an efficient and widely accepted long term management solution, including consideration of the role the private sector can play in the provision of water and sewerage services in Lesotho.

§  Stakeholder consultation: The project will include a significant communications program aimed at widening the stakeholder base and reaching consensus for the second phase of the water sector reform. The 1999 Water Management Policy document is mandated to be updated every 5 years and this will take place early in the project. At the same time, the progress and interim results emanating from the Performance Contract will be communicated to the public as well as the drafting of new legislation carried out to reform the Water and Sanitation Act and to prepare revisions to the 1978 Water Resources Act. This legislation will be discussed and feedback obtained. This will result in the development of an efficient and widely accepted long term policy and ensure public confidence and support.

§  Integrated approach to sector and cross cutting issues: The water sector in Lesotho has been criticized for lack of integration and dealing with policy issues in a fragmented way. The project will undertake strong efforts to build consensus with the various players in the sector to tackle common problems pertaining to rural and urban services, industrial and domestic consumers, and municipal and central government authorities.

  1. Safeguard Policies (including public consultation)

The project triggers three safeguards policies – Environmental Assessment (rated B), as well as Involuntary Resettlement and Projects on International Waterways.