Ghana - Second Community Water and Sanitation Project (CWSP2)

Document of The World Bank Report No: 19594 GH PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 18.7 MILLION (US$ 25 MILLION EQUIVALENT) TO THE REPUBLIC OF GHANA FORA SECOND COMMUNITY WATER AND SANITATION PROJECT IN SUPPORT OF THE FIRST PHASE OF THE COMMUNITY WATER AND SANITATION PROGRAM August 5, 1999 Water and Urban 2 Country Department 10 Africa Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective July 28, 1999) Currency Unit = Cedi (GHC) GHC 1= US$ 0.000375 US$ 1 = GHC 2,670.00 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AFD French Aid Agency APL Adaptable Program Loan CDF Country Development Framework CIDA Canadian International Development Agency CWSA Community Water and Sanitation Agency CWSP-l First Community Water and Sanitation Project CWSP-2 Second Community Water and Sanitation Project CWS Community Water and Sanitation DA District Assembly DANIDA Danish International Development Agency EPA Environmental Protection Agency ESA External Support Agency EU European Union FMIS Fianancial Management Information System FMP Facility Management Plan GoG Govermnent of Ghana HO Head Office JICA Japan International Cooperation Agency KfW German Cooperation LACI Loan Administration Change Initiative NCWSP National Community Water and Sanitation Program NGO Non Govermmental Organization O&M Operation and Maintenance PO Partner Organization POM Project Operational Manual RWSTs Regional Water and Sanitation Teams TA Technical Assistance UNDP United Nations Development Program UNICEF United Nations Children's Fund VIP Village Infrastructure Project WATSAN Water and Sanitation Committees Vice President: Jean-Louis Sarbib. AFRVP Country Manager/Director: Peter Harrold, AFC 10 Sector Manager/Director: Letitia A. Obeng, AFTU2 Task Tearn Leader/Task Manager: Jennifer Sara, AFTU2  Republic of Ghana Second Community Water and Sanitation Project CONTENTS A. Project Development Objective Page 1. Program purpose and program phasing: 3 2. Project development objective 3 3. Key performance indicators 3 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 3 2. Main sector issues and Government strategy 4 3. Sector issues to be addressed by the project and strategic choices 5 4. Program description and perfomnance triggers for subsequent loans 6 C. Project Description Summary 1. Project components 8 2. Key policy and institutional reforms supported by the project 8 3. Benefits and target population 8 4. Institutional and implementation arrangements 9 D. Project Rationale 1. Project altematives considered and reasons for rejection 10 2. Major related projects financed by the Bank and other development agencies 11 3. Lessons leamed and reflected in proposed project design 11 4. Indications of borrower commitment and ownership 12 5. Value added of Bank support in this project 12 E. Summary Project Analyses 1. Economic 12 2. Financial 13 3. Technical 13 4. Institutional 14 5. Social 15 6. Environmental assessment 15 7. Participatory approach 15  F. Sustainability and Risks 1. Sustainability 16 2. Critical risks 17 3. Possible controversial aspects 18 G. Main Loan condition 1. Effectiveness conditions 18 2. Other 18 H. Readiness for Implementation 18 I. Compliance with Bank Policies 18 Annexes Annex 1: Project Design Summary 1 9 Annex 2: Detailed Project Description 22 Annex 3: Estimated Project Costs 29 Annex 4: Cost Benefit Analysis Summary 30 Annex 5: Financial Summary 32 Annex 6: Procurement and Disbursement Arrangements 34 Annex 7: Project Processing Schedule 40 Annex 8: Documents in Project File 41 Annex 9: Statement of Loans and Credits 42 Annex 10: Country at a Glance 44 Annex 11: Letter of Sector Policy 46 MAP(S) IBRD 23606  GHANA Second Community Water and Sanitation Project Appraisal Document Africa Regional Office Water and Urban - AFTU2 Date: August 5, 1999 Team Leader: Jennifer J. Sara Country Manager/Director: Peter C. Harrold Sector Manager/Director: Letitia A. Obeng Project ID: 50616 Sector(s): WR - Rural Water Supply & Sanitation Lending Instrument: Adaptable Program Loan (APL) Theme(s): Rural Development Poverty Targeted Intervention: Yes Program Financing Data Estimated APL Indicative Financing Plan Implementation Period Borrower (Bank FY) IDA Others Total Commitment Closing USS m % USS m USS m Date Date APL 1 25.00 89.3 3.00 28.00 01/01/2000 06/30/2003 Loan/ Credit _ _ _ _ APL 2 26.00 88.4 3.40 29.40 01/01/2003 06/30/2006 Loan/ Creditt _ _ _ _ __ _ __ _ _ _ _ _ APL 3 29.00 89.0 3.60 32.60 01/01/2006 12/31/2008 Loan/ Credit _ _ _ _ _ _ Total 80.00 10.00 9.00  -2- Project Financing Data [ ] Loan fx] Credit [ ] Grant [ Guarantee [ Other (specify) For LoanstCredits/Others: Amount (US$m) Proposed Terms: Grace period (years): 10 Years to maturity: 40 Commitment fee: Standard IDA Service charge 0.75% Financing Plan: Source Local Foreign Total Government 1.30 0.00 1.30 IDA 24.50 0.50 25.00 Communities 0.90 0.00 0.90 District Assemblies 0.80 0.00 0.80 Total: 27.50 0.50 28.00 Borrower: Govermment of Ghana Guarantor: NA Responsible agency: Community Water and Sanitation Agency, Ministry of Works and Housing Implementing agency(ies): Community Water and Sanitation Agency Address: Private Mail Bag, K.I.A., Accra- Ghana Contact Person: Peter 0. Sackey Tel: 233-21-77-91-02 Fax: 233-21-77-94-75 Email: cwsd@ghana.com District Assemblies in Ashanti, Brong Ahafo, Upper East and Upper West Regions Estimated disbursements ( Bank FY/US$M): FY 2000 2001 2002 2003 Annual 3.70 8.00 10.00 6.30 Cumulative 3.70 11.70 21.70 28.00 Project implementation period: Phase 1: Three years Expected effectiveness date: 01/01/2000 Expected closing date: 06/30/2003 OCS PAD Pornn OScer P. 199  -3- A: Program Purpose and Project Development Objective 1. Program purpose and program phasing: The purpose of this Adaptable Program Loan (APL) is to support the Government of Ghana to extend the coverage of sustainable water and sanitation facilities to 85 percent of the rural population by the year 2009 and establish a sustainable operations and maintenance system in rural communities and small towns. The second Community Water and Sanitation Project (CWSP-2) will be implemented in three, 3-year phases. The Bank will support each phase distinctly through a portion of the Adaptable Program Loan. Each new phase will be appraised to learn from experience gained during implementation of the previous phase. This will allow for continuous adjustment to project design, early risk identification, and implementation of corrective measures before expanding to other phases. All phases will have the same development objective. Trigger indicators for Phase 2 are included in the Project Operational Manual (POM). The project described in this PAD refers to the first phase of the Program. 2. Project development objective: (see Annex 1) The development objective of Phase 1 for CWSP-2 is to increase service coverage and achieve effective and sustained use of improved community water and sanitation (CWS) services in villages and small towns in four regions. Specific objectives of CWSP-2 include: a) implementing demand-responsive and sustainable CWS services, providing basic drinking water and sanitation facilities to about 550,000 people in rural communities, through construction and rehabilitation of waterpoints, piped systems, and sanitation facilities; b) strengthening community capacity to manage services by assisting communities in planning, implementing and administering services, forming and training water boards and water and sanitation (WATSAN) committees, and training community members in better hygiene practices; c) strengthening district-level capacity to deliver CWS services, including an active role by the private sector, and NGOs in delivering goods and services and District Assemblies (DAs) in planning and providing community support in service planning, implementation and management; d) strengthening CWSA's capacity to assume facilitator role, and supporting the national CWS program. 3. Key performance indicators: (see Annex 1) T'he achievement of the development objective will be monitored through three performance indicators: * number of communities with access to CWS services and adequately using, managing and sustaining their improved services by the end of Phase 1; * number of districts with functioning delivery system of goods and services to support and sustain water and sanitation systems by the end of Phase 1; and + efficient facilitation of sector role by CWSA with a built-in process for stakeholder reviews, continuous learning and policy development. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Click here to get to the CAS Document Document number: 17002-GH Date of latest CAS discussion: 09/04/97 The CAS supports the Government's development objectives of restoring macro-economic stability, promoting higher private investment, ensuring broad-based social and rural development and implementing direct poverty reduction measures, all aimed at the overarching objective of reducing poverty and improving the lives of Ghanaians. The strategy of promoting rual development includes a component for supporting investment in basic rural infrastructure, of which water supply and sanitation is part. The project will increase access by the rural poor to sustainable water and sanitation services, thereby supporting the broader objective of improving the lives of all Ghanaians. It is therefore designed as an APL, that will assist Government to  -4- move in the direction of sector programming, improve coordination and impact of development activities at the local level and promote cross-sectoral linkages. 2. Main sector issues and Government strategy: Government's Policy for the Sector and CWSP-1: Major policy reform for the water and sanitation sector was achieved under the first IDA-supported project Community Water and Sanitation Project (CWSP-1) through the launching of the National Community Water and Sanitation Program (NCWSP) in 1994. CWSP- 1, scheduled to close in December 1999, is having an important impact in the sector and has contributed valuable lessons to CWSP-2 design. Key elements of the Community Water and Sanitation policy include: * demand-driven approach through which communities decide if they want to participate and their preferred service level based on willingness to pay, contribute toward the capital cost (at least 5-10 percent cash contribution) and pay the normal operations, maintenance, and repair costs of their facilities; * decentralized planning and management services by (1) making communities the decision-makers, owners and managers of their water supply and sanitation facilities and (2) making DAs more autonomous and better able to assist comnuunities in obtaining improved services; * private sector (including NGO) as provider of all goods and services; and * public sector as facilitator, with CWSA contracted by GoG to manage the CWS Program and provide technical assistance to DAs and the private sector. Community Management - Effective and Sustained Use of Services: At the community level, water and sanitation (Watsan) committees and small town water boards have demonstrated good capacity for planning and managing their services. However, full health benefits of improved CWS services can only be achieved with accompanying improvements in hygienic practices by the user population and the community's capacity to sustain services. These new skills and behavioral changes require not just a one-off visit to the community during project implementation, but the establishment of a long-term, follow-up support system accessible to communities on demand. Government's Decentralization Policy: In Ghana, decentralization reforms are well advanced and involve the transfer of considerable fiscal, administrative, and development responsibilities to the 110 DAs that have been established through the Local Govemnment Law of 1988 (P.N.D.C.L 207). Each DA has an organizational structure that supports development activities, prepares a 5-year District Development Plan and receives an annual Common Fund allocation from the Central Govenunent. While the principle of decentralization is now well established, its progress has been constrained due to (i) the reluctance of sector ministries to devolve part of their authority to the districts; and (ii) the lack of logistical support and qualified and experienced staff within many DAs. CWSA has made great efforts to build the capacity of the DAs that participate in the National Community and Sanitation Program (NCWSP), thereby contributing to decentralization refonrs and incorporating CWS into a broader district-based development agenda. Local Capacity for Delivering Goods and Services: Although the design of CWSP-1 called for increased transfer of procurement responsibility, contracting and contract supervision to the DAs, most of these tasks are currently undertaken by the CWSA and its Regional Water and Sanitation Teams (RWSTs). Community and district-level contracting is important in the long-term since it establishes a commercial link and greater accountability between the community and the providers of goods and services and allows the community to develop its capacity for procuring materials and managing contracts during subproject implementation. In addition, long-term sustainability of the facilities will only be achieved when communities can readily purchase required goods, services and spare parts within the local market. The Community Water and Sanitation Agency: As part of the national policy reform, Govemment recently created the Community Water and Sanitation Agency (established by Act 564, 1998) to facilitate the implementation of the national CWS strategy. As an autonomous agency, CWSA has the following attributes: (i) governance by a board, composed of the main stakeholders in CWS, including local government, traditional leadership, NGOs, and the private sector, (ii) ability to set employment tenms and conditions to attract and keep well qualified staff, and (iii) ability to generate revenues from its management  -5- services. CWSA, as a non-revenue earning autonomous agency, fully depends on government allocations for its operations. While CWSD/A has been successful during the past four years in attracting external funding for the CWS sector (about US$20 million year), no external support agency is willing to pay salaries and recurrent costs for this government agency. Sector Financing: The CWS sector is largely financed through external support agencies (ESAs), representing more than 90 percent of the investment program. In addition to IDA, these ESAs include: DANIDA, CIDA, KfW, AFD, JICA, EU, UNICEF, UNDP andNGOs (Water Aid, World Vision, others). In 1998, CWSA reported that 44 billion cedis (about US$20 million) was spent in the sector, of which 8 percent was provided through government counterpart funding, 25 percent by IDA (US$5.0M) and the remainder by other ESAs. Unfortunately, the sector's fnancial situation has significantly worsened during the past few years, due in part to an increase in counterpart funding requirements from each ESA, and a decrease mnGoG resource allocation. CWSA has accumulated large arrears in meeting its counterpart obligation to all of its major co-financed projects. Investment Coordination and Policy Development: CWSA has achieved success in promoting the adoption of the NCWSP policy throughout the country and achieving DA and ESA buy-in to the national program. CWSA has the challenging task of coordinating and monitoring all projects while ensuring the consistent application of the national policy and strategy. From the outset, CWSA developed a participatory process for stakeholder consultation in policy and strategy development. These consultations are important to ensuring that current CWS policy and strategy do not become blue-prints and that a continuous learning and dialogue process exist so that actual field results can provide overall guidance to sector development. Because of the contractual nature of the relationship arnong the government, the private sector andNGOs, it is important to encourage and maintain the candid exchange of ideas within a learning environment. 3. Sector issues to be addressed by the project and strategic choices: Decentralization and Linkage to Other Rural Development Initiatives: CWSP-2 will support district water and sanitation programs within the broader context of on-going decentralization reforms and other rural development initiatives within the country. It will therefore place greater responsibility on communities and DAs to express demand and formulate proposals for water and sanitation service improvements. Clear, demand-responsive procedures have been developed for communities to request funding from DAs as and when they are ready with: a completed subproject proposal, an associated Facility Management Plan (FMP), and a minimum 5-10 percent contribution. District Water and Sanitation Programs will also be integrated into other development initiatives, and CWSP-2 will build upon efforts of existing district strengthening projects, such as the Village Infrastructure Project. Phase 1 of the APL will be used to refie the strategies for decentralized implementation. Community/District Level Contracting: To achieve Government's decentralization objectives and allocate investment responsibilities where there is the greatest incentive, accountability and, hopefully, greater efficiency, CWSP-2 will promote direct implementation of subprojects by DAs and/or conmnunities. The CWSA project preparation team assessed DA and comunnity capacity, reviewed existing procedures and tested alternative approaches toward developing procedures for community/DA contracting. CWSP-2 will also ensure that communities and DAs have access to appropriate technical assistance and training programs which will strengthen their capacity to assume these new functions. Implementation Capacity and Ensuring a Long-term Supply of Goods and Services: As a complement to community/DA-level contracting, CWSP-2 will adopt more streamlined procedures for implementing the project cycle at the community level. Furthermore, CWSP-2 will unify subproject appraisal and implementation procedures for the small town and village water supplies (mechanized systems and point sources) in order to develop a standard approach to the CWS program, regardless of conunnity size or technology type. CWSP-2 will also continue to strengthen the capacity of the local private sector andNGOs, through training as well as promoting a str,nger enabling environment and providing incentives for the entry of smaller-scale contractors. Sustainability and Community Management: The CWSP-2 implementation process has been designed to integrate an extensive community development and training program into all phases of the project cycle. An integrated approach of water, sanitation and hygiene education will be followed. Communities will be  -6- eligible to apply for additional follow-up training, even when it is not associated with new investment. Women's participation in all aspects of the program is a key element of sustainability. Schools will also be encouraged to participate in CWSP-2, by providing intensive hygiene education and promoting adequate facility usage to school children. Within the APL approach, CWSP-2 will continuously monitor and adjust its implementation strategy to ensure that services provided in the communities respond to an effective demand, are adequately used, and mechanisms are in place for long-term sustainability. GoG Support to Sector Financing: CWSP-2 will support GoG in establishing a long-term CWS sector program. The proposed funding for this program, which was discussed with GoG, is as follows: (a) communities and district assemblies would request services, select their preferred service levels, pay a portion of the capital cost and assume full responsibility for operations, maintenance and service sustainability; (b) external support agencies, including IDA, would assist in fnancing the costs of increasing service coverage (both software and hardware); and (c) GoG would ensure long-term sustainability of the sector program by covering, at the very least, CWSA's costs, as the govermnent agency responsible for facilitating service provision and channeling investmnent funds to the DAs and communities. The Bank will seek agreement that the amount provided by GoG to the sector be at least 5 billion cedis/year (indexed to 1999), a level sufficient to cover CWSA's core costs if all ESAs were to remove their support. CWSA as a Facilitator: Since CWSA is now an autonomous agency, a suitable mechanism for remunerating its work could be through a performance-based fee-for-service (i.e. a management fee), in relation to the amount of subprojects approved and funds disbursed to DAs/communities. However, some key decisions which would form the basis for the introduction of the management fee concept will require the approval of the CWSA Board, which must be in place before project effectiveness. Performance will be measured in terms of quantity, quality and sustainability of services in the communities, as well as the increased capacity of the local private sector in delivering goods and services. CWSA will need to operate efficiently to maintain staffing levels and operating costs within the available budget. Furthermore, to assist CWSA in carrying out its task of coordinating ESAs, CWSP-2 will support a move to a more progranmatic approach, whereby sectorreviews will bejointly undertaken by allESAs periodically, and a foundation set to encourage ESAs to pool resources into a common CWS fund. 4. Program description and performance triggers for subsequent loans: The overall goal of the program is to increase coverage and achieve sustained and effective use of CWS. Below are the goals for each phase of the program: Program Output Phase 1 Phase 2 Phase 3 Investment * Test and refine decentralized * Expand project to two * Support national implementation strategy for additional regions and program rather than CWS in four regions increase to new districts ESA supported * Pilot community contracting regions. Capacity building * Build capacity of DAs, Private * Expand to other regions * Same as above. sector and NGOs in four * Focus on long-term sale regions of spare parts and * Build foundation for sustainable continued lowering of and competitive supply chains unit costs (i.e., drilling) Policy * Support to CWSA through pilot * Full scale implementation * Regulatory framework management fee of management fee. for National CWS * Discussion and consultation on Funds in place and decentralized approach operational. * Promote higher cost recovery.  -7- Below are the indicators for Phase 1 of the APL. Specific baseline indicators and targets for Phase 1 are included in the POM. These triggers are designed to provide strategic goals and data collection will be linked to the overall reporting, monitoring and evaluation system of the project. Investment Efficiency of Decentralized Service Delivery Model: * 80 percent of Phase 1 implementation targets met (physical, social and financial) * Length of project cycle in community equal or less than under CWSP-l (baseline is 18 months) * Per capita costs of implementation: at least 10 percent lower than for CWSP-1 (baseline available in unit cost data base) Effectiveness/impact of approach decentralized implementation model: * demand-based approach: at least 80 percent of pre-selected communities submit proposals, 85 percent of proposals are positively appraised and 100 percent of these are funded (within DA approved budget ceiling) * sustainability: 85 percent of water and sanitation systems properly functioning in sampled area * effective facility use: 70 percent of users demonstrate improved hygiene, sanitation and environmental protection practices in sampled area Pilot test community contracting: * at least 5 percent of subproject grant resources are channeled to communities for community- contracting Capacity Building District Level Capacity Strengthened: and Sector * 80 percent of DAs participating in CWSP2, meet funding requirements (District sector plan, Support support to District Water and Sanitation Team, audited accounts in order, financial obligations met) Sustainable Supply Chains: * # of providers of goods and services working in each district and number competing per contract increases over time (baseline is district-specific) * Handpump spare parts available for sale in 50 percent of the districts CWSA management: * CWSA operating within staff levels (200) and budget agreed by Board * CWSA operating costs relative to investment program not to exceed 10 percent * Decentralization to regions: RWST capacity to plan, financial management, and meet reporting requirements as established in POM * Improved financial management and reporting systems, strategic budgeting and planning in place at CWSA Policy * Stakeholder consultation, including ESAs, NGOs and others (degree to which they participate in dialogue - measured through client surveys and interviews) * Evaluation of strategy and impact: improvements to strategy, as required, based on monitoring and evaluation (measured through recommendations and actions presented at the Annual Sector Review) * Testing of methods for achieving increased cost recovery from communities (5 percent of subproject grant component achieves at least 10 percent contribution from the community)  -8- C: Program and Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): Indicative Bank- % of Component Sector Costs % of financing Bank- (US$M) Total (US$M) financing 1. Subproject Grants (a) water and sanitation facilities, in Rural Water Supply 17.30 61.0 15.60 62.0 villages, small towns and schools & Sanitation (b) community development Rural Water Supply 3.80 14.0 3.80 15.0 & Sanitation 2. Sector Support and Training for Rural Water Supply 3.20 11.0 3.20 13.0 strengthening of DAs, NGOs, and private & Sanitation sector and program development 3. Project Management Rural Water Supply 2.50 9.0 1.20 5.0 & Sanitation 4. PPFRefmancing Rural Water Supply 0.80 3.0 0.80 3.0 & Sanitation 5. Unallocated 0.40 2.0 0.40 2.0 Total Project Costs 28.00 100.0 25.00 100.0 Total Financing Required 28.00 100.0 25.00 100.0 2. Key policy and institutional reforms supported by the project: No major policy reforms are envisaged in CWSP-2, but existing policy reforms will benefit from a more wide-spread application throughout the country, especially for communities and districts taking full responsibility for their subproject planning, implementation and sustainability. One policy change to be adopted between APL phases will include a financial policy review, with a possible increase in community cost sharing. The passage of the CWSA Agency Act represents an important institutional reform in the sector in terms of how this lead agency is funded and its performance monitored. Every year, GoG's long-term financial commitment to the sector is being sought as a condition of project effectiveness. Furthennore, CWSP-2 will support GoG's move toward a sector approach to CWS, rather than continuing with the project-by-project approach. 3. Benefits and target population: Benefits: CWSP-2 aims to provide basic drinking water facilities for about 550,000 people in maral communities and will promote improvement of household sanitation and hygiene practices. The project will contribute to the poverty reduction through time savings, improved productivity and health, especially for women and children. In addition, community members will benefit in the long-term from the strengthening of a network of formal and informal institutions that would help plan, install and provide maintenance of infrastructure facilities. The private sector and NGOs will be strengthened, leading to increased employment opportunities in rual areas. District governments will gain significant institutional capacity in developing the districts' water and sanitation plan and working with communities to implement subprojects. This will contribute to strengthening the community-DA linkage, with spill-over effects to other rural development activities. Target population: The project will target Ghana's rural population and small towns, initially in four regions: Brong Ahafo, Ashanti, Upper East and Upper West Regions. These communities depend on agriculture or trading activities for subsistence, and are mostly below the poverty level. The project will  -9- initially target communities in districts that have low service coverage rates, little external support for sector investments and high demand for improved services. Eligibility and prioritization criteria have been developed to ensure that investments respond to conununity demand and that eligible communities and districts have equal opportunity in accessing support. 4. Institutional and implementation arrangements: CWSA has prepared and field tested a detailed CWSP-2 Project Operational Manual (POM) that outlines the rules and procedures for project implementation. This manual has been widely discussed with stakeholders involved in CWSP-2, and was presented to the Bank as a basis for preparing this Project Appraisal Document. The POM will be adopted by CWSA by project effectiveness, and evaluated mid-way through Phase 1 of the APL in preparation for the subsequent phase. Executing agencies CWSA has primary responsibility for guiding, promoting, facilitating, supervising, monitoring, evaluating and reporting on project activities. CWSA will also implement the Sector Strengthening and Program Management Components. Project implementation will be decentralized within CWSA, with Regional Offices (RWSTs) playing a key role in providing technical assistance to the DAs and building private sector capacity for smooth subproject implementation. District Assemblies will be responsible for the execution of the subprojects on behalf of, and in close coordination with, the communities. On a pilot basis, subprojects will also be implemented directly by communities. The detailed subproject cycle and rules are described in Annex 2. Subproject implementation: Water and sanitation subprojects will be requested, planned, implemented and managed by communities. Gender-balancedWatsan committees and water boards will manage facilities and represent the community. Communities will receive assistance in preparing subproject proposals andFMPs which will be submitted to the DA for approval. Communities will open bank accounts and deposit the required cash contribution (at least 5 percent of facility cost) as a condition of subproject appraisal. Communities will then participate with the DA in selecting and contracting goods and services to the community and sign off on completed works and community development activities. Although the DA will perform most of the procurement and contracting tasks, community-level contracting will also be promoted. Communities will be responsible for sustaining services and encouraged to undertake participatory monitoring and evaluation of their activities. Small towns water boards will be encouraged to enter into service management contracts with the private sector. DAs will work through their District Water and Sanitation Teams (DWST) - or equivalent, to establish District Water and Sanitation Programs and promote the project in eligible communities. DAs will open a separate project bank account and contribute at least 5 percent of the facility construction cost. DAs will be responsible for appraising construction grant applications and FMPs, and will prepare packages of subprojects for CWSA approval on a periodic basis. The DAs will also work with communities to contract and supervise community development, training and investment activities. CWSA, through its RWSTs, will review funding requests and disburse funds for approved subprojects. CWSA will be remunerated for subproject management on a fee-for-service basis, in relation to the amount of subprojects approved, funds disbursed, and impact achieved (see Section E.4 Insitutional Analysis). CWSA would therefore have an incentive to strengthen the capacity of both the DAs and the local private sector in order to better link demand with supply. At the local level, the private sector and NGOs will compete for contracts to deliver goods and services to communities and DAs. Their capacity will be strengthened by developing incentives for their long-term presence in the district. Procedures will be developed to ensure adequate competition and efficiency in awarding contracts. Financial management: the payment order for the first tranche of funds approved for each DA will be submitted by the RWST accountant to CWSA. Pre-conditions for transfer include: (1) the signed Subproject Agreement between RWST and DA; (2) the subprojects package approval and signing of subproject  -10- agreements with communities; (3) a procurement plan; and (4) the deposit of the total amount of DA's share of fumding into the project account. Each successive installment will only be paid after the DA submits expenditure justification to the RWST. Upon receipt of DA's progress reports and requests for replenishment, the RWST will examine the report on the basis of: completeness, internal fnancial consistency, procurement justification, consistency with subproject proposal, relevant field supervision reports, etc. Internal auditors working at CWSA and DA levels, will undertake: financial assessments, evaluation of procurement methods, random physical verification of works in the field with a focus on output. In addition, CWSA will hire an external auditor to work in all four regions. Monitoring and Evaluation (M&E): The objective of M&E will be to provide critical information that will be used to assess the effectiveness, efficiency and sustainability of CWSP-2. The M&E system will use a participatory approach, with all stakeholder groups responsible and trained for activities at their respective levels. The project M&E system will fit into the national system. External evaluators will be hired by CWSA to conduct impact assessments. The key M&E indicators are included in Annex 1. D: Project Rationale 1. Project alternatives considered and reasons for rejection: * "Business as Usual": Implementation arrangements would be the same as for CWSP-1, with most of the contracting done by CWSA. The drawback of this option is that the model has not been efficient, given the large number of contracts and stakeholders involved in each conmnunity and lack of direct accountability by service providers to the communities and DAs. It also requires more detailed annual planning and up-front resource allocation, whereas CWSP-2 provides greater flexibility to meet community and DA demand at their own pace in a programmatic way throughout the entire country. + A second option would be to assign completeresponsibility for sectoral activities to the DAs. Given the limited capacity of the DAs, especially in terms of undertaking participatory development activities, there would be a great risk in leaving DAs (on their own) to meet community needs for improved services and provide associated training activities. The biggest risk could be decentralization of the "supply-driven approach," which would undermine the tremendous gains made by the sector in achieving community decision-making and management of CWS services at the lowest appropriate level, which in the case of rural water and sanitation, is the community itself. * A third option would be to channel funds directly to the DA in the context of a broader rural development project, such as the Village Infrastructure Project (VIP). However, this alternative is not recommended, since the objective of the project is to ensure effective and sustained use of facilities. This can best be achieved through the delivery of an integrated package of software and hardware specific to CWS sector needs and the development of a decentralized institutional and financial capacity that links community management to a long-term supply of goods and services from the private sector, with adequate public sector support from the local and national levels. Other options within the project concept Alternative options for fmancing the project will be explored during Phase 1. Some communities have expressed the need for either a higher level of service, or speedy delivery of services, and are willing to make a higher contribution than the required 5 percent. Options to meet these demands should be explored. Strategies should be developed to encourage rehabilitation over the construction of new systems, as well as introduction of lower cost technologies. An additional option to be considered would be to increase the level of DA, private sector participation and NGO involvement in co-financing the investments.  -11- 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Project (PSR) Ratings (Bank-financed projects only) Implementati Development Bank-financed on Progress Objective (IP) (DO) Water and Sanitation First Community Water and S S Sanitation Project (ongoing) Water Sector Rehabilitation S U Project (completed) Water Sector Restructuring Project (planned) Rural Development Village Infrastructure Project HS S (ongoing) Other development agencies Danida Volta, Eastern and Greater Accra; Sector Capacity Building Project CIDA COWAP, GAP and Volta Region KFW Eastern Region and Small Towns AFD Northem Region JICA Western Region EU Small Towns IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The CWSP-l Mid-term review, contributions made during the global RWS conference held in Washington in May 1998, results of CWSA's project preparation work, and input from the Bank's RWS Thematic Group, provide the following lessons: * The principle of community management is well established in Ghana and accepted by communities. There should be no major difference in approach between village and small towns, since all are community managed systems. * In order to enhance the demand-based approach, a more programmatic approach to fumd allocation should be followed, so that communities and DAs can apply for funding once they have met participation criteria and collected capital cost contribution. * Conununity willingness to pay for services may be much higher than expected and this is often not reflected in financial policies that have high subsidy levels. * NGOs are effective in mobilizing communities, helping in planning facilities and deciding how to manage them. In order to strengthen their role, NGO contracts and work plans need to be based on annual agreements of targets, should support community needs and allow NGOs to provide a broader range of services. Greater flexibility is needed when implementing the project, so as to adjust to the community's pace, interests and capacity, rather than adopting a common approach to all. * The private sector has responded well; however, competition between suppliers should be enhanced and other ways of packaging software and hardware considered to improve service. Better ways for ensuring spare parts availability in the local market must also be developed. + Sustainability relies greatly on the capacity of the Watsan committee or water board to assume its functions. Training must be reinforced to ensure sound water supply management, and must start very early in the project cycle. * Women now have a greater role in decision making and are better empowered to facilitate conununity action. However, concerted efforts are required to ensure that women continue to be actively involved at all levels.  -12- * CWSA must continue to support the active donor and inter-ministerial coordination already going on, and encourage NGOs and private investors to contribute to the sector policy dialogue rather than just being contractors. * The pilot projects implemented for CWSP-2 preparation show that DAs and communities are keen on taking on more responsibility. * More attention must be given to the sanitation and hygiene education component so as to achieve lasting results. 4. Indications of borrower commitment and ownership: GoG has shown a high level of commitment in continuing to increase water and sanitation coverage in rural areas. There is strong ownership of the national policy as it has been designed by Ghanaians in a participatory and transparent way. DAs have also shown their conmiitment to the national program by formingDWSTs and allocating resources for sector activities. Finally, conununities have a high commitrnent to the program as they have readily contributed to and taken ownership of their facilities under CWSP-1. CWSA has been especially effective in implementing CWSP-1 with staff working long hours with high levels of dedication. CWSP-2 preparation is being undertaken by CWSA staff, with assistance from a small group of local consultants, using a US$750,000 Project Preparation Facility provided by the Bank. 5. Value added of Bank support in this project: The World Bank has developed a strong relationship with sector agencies at all levels during the past ten years of work in Ghana by supporting pilot projects, policy development and CWSP-1. There is a high degree of mutual trust, credibility in CWSA's capacity and a strong willingness by the Bank to strengthen this Ghanaian-driven program. In CWSP-2, the specific added value of the Bank will be to assist in developing a long-term, district-based CWS program that could serve as a common framework for other ESAs. In addition, the Bank can act as a catalyst for mobilizing additional resources. Finally, CWSP-2 is part of a larger portfolio of Bank interventions in rural areas in Ghana, including support for education, health, decentralization and agriculture. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (supported by Annex 4): [x] Cost-Benefit Analysis: ERR - 18 to 35 % L Cost Effectiveness Analysis: L Other The major benefits of this project are improved water services to approximately 550,000 beneficiaries in rural conmnunities and small towns. These include direct user benefits from water consumed and consumer surplus for users who now use less effective and more costly alternatives (such as rivers etc.). The project offers improvements to communities that express a willingness to participate, and are scaled to a level of service with affordable variable costs for beneficiaries. CWSP-2 also focuses on achieving service sustainability, through intensive user education in effective use, administration, and operation and maintenance. Thus, it is highly probable that user benefits, calculated on the basis of time savings related to improved sources and associated consumer surplus, will be realized. Based on conservative assumptions regarding time savings, share of productive time, and the value of time, for point sources, the NPV at a 15 percent discount rate is US$1,602 per hand-dug well, and US$758 per borehole. Further information is provided in Annex 4. Detailed analysis on the small towns water subproject has not been prepared due to a lack of accurate information. However, more detailed economic work will be carried out on the small towns during the implementation of Phase 1 of this APL. Additional benefits are expected from the on-site sanitation component, although these have not been quantified. The strategy calls for strong promotion and demand generation of user investment in sanitation, low-levels of subsidy (basically to cover the cost of a latrine slab and vent pipe), testing of revolving loan mechanisms, targeted coverage of at least 60 percent of households per community to achieve full health impacts and promoting a wider range of lower cost options. These should bring additional positive health benefits to communities.  -13- 2. Financial (see Annex 5): Financial policy for subprojects: CWSP-2 will apply GoG's policy for the sector of at least 5-10 percent community cash contribution to the investment cost and 100 percent cost recovery for O&M. CWSA has also developed a unit cost database that will be used to estimate the cost of individual subprojects. The database will be updated periodically. A subsidy ceiling estimated at $30 per capita for water point sources and $45 per capita for small towns has been established, and will be reviewed on an annual basis. Different options will be tested for household latrines in an effort to reduce subsidy and increase density of coverage within any community. Ideally, the project should prioritize investments where willingness to pay is highest, and therefore higher levels of cost recovery from communities will be tested during Phase 1. Results from this work will contribute to the Phase 2 design of the APL. Financial Management System: CWSD/A has perforned adequately in the financial management of CWSP- 1. DANIDA is supporting the strengthening of its Financial Management System and is coordinating with the Bank to ensure that the system developed will help CWSA achieve LACI requirements. CWSA will continue to be responsible for managing CWSP-2 project accounts, meet planning requirements, complete progress reports and implement auditing requirements. Fiscal Impact: At the national level, GoG will be expected to make a contribution of cedis 5 billion (indexed to 1999) to CWSA at the beginning of each year, as a minimum contribution to the CWS sector. CWSA will use these funds to cover its recurrent costs and meet counterpart funding requirements, as agreed with otherESAs. This level of GoG contribution, albeit low (about 10 percent of the overall sector program), should be affordable, as it represents an allocation amount similar to that received by CWSD during the past three years. The DAs will be required to contribute 5 percent to subproject costs. An average package of subprojects would include about ten point sources, latrines and one small town water system, for a total value of about US$300,000. A 5 percent contribution would represent US$15,000, less than 4 percent of the average DA Common Fund Allocation. In addition, the DA will cover DWST operating costs, which they are doing under CWSP-1. 3. Technical: There are no major technical issues, since the technologies adopted in Ghana for the CWS sector are well- known, appropriate and benefit from standardization. Water supply options will include hand-dug wells, drilled bore holes small piped systems and rainwater catchmnents. Sanitation options will mostly include latrines. Handpump options will follow existing standardization (Nira, Afridev, IM and Vergnet), as wil1 motorized pumps. Where appropriate, the installation of simple electric submergible pumps may be installed in the place of handpumps. Handpump supply: Although the sector strategy calls for the private sector to supply goods and services, it has not yet hivested in importing and retailing of handpumps due to high capital cost and market uncertainties. Under CWSP-1, CWSA pre-fmanced the private sector to importhandpumps. CWSP-2 will continue to support CWSA in developing incentives to encourage the private sector to take over the purchase and distribution of handpumps and spare parts. Low cost technology: CWSP-2 will promote the use of simple and lower-cost water lifting devices and pumps than those currently in use for small communities or households (including, for example, the SOPE pump). Also, a wider range of lower-cost on-site sanitation options will be promoted in rural communities. Small towns: Studies conducted during project preparation revealed that the per capita investment cost of small town piped water supply systems is much higher than for small communities served with point sources of water. CWSP-2 wi1l establish incentives to lower the per capita investment cost of small town water supply systems. The small town study found that specific water consumption for small town water systems  -14- (where consumers pay for water) is lower than the design values adopted. The project therefore proposes that CWSA reduce design standards for a basic level of service from 45 I/c/d to 20-30 I/c/d, although communities will be encouraged to pay for a higher level of service, if desired. Phased system upgrading will also be promoted as a means for communities to progressively increase service levels over time. 4. Institutional: a. Executing agencies: Subprojects will use a decentralized approach, with key roles played by districts, communities and the private sector. The project preparation team worked with the DAs and community in evaluating their capacity to implement the project cycle and assume responsibility for procuring and contracting subprojects. Appropriate procurement and disbursement procedures for community and DA contracting have been developed. In addition, capacity building will be provided (as needed) to project stakeholders to enable them to effectively carry out their roles (see Annex 2 on capacity building and Chapter 5 of the Project Operational Manual). An important challenge will be to explore appropriate incentives for the private sector that would facilitate long4erm sustainability of a spare parts distribution system. b. Project management: CWSA will oversee project implementation as part of its role as facilitator of the National Program. CWSA is an autonomous agency, operating under the Community Water and Sanitation Act 564 of 1998, and has long-standing experience with water and sanitation projects in Ghana. The main functions of the Agency are to: promote sustainable water supply and sanitation services in rural communities and small towns ftrough the provision of support to DAs, encourage active community involvement, formulate strategies for mobilization of resources, liaise with donors, encourage private sector participation, provide technical assistance to DAs, assist and coordinate with NGOs involved in the sector, initiate and pursue education programs for the creation of public awareness, prescribe standards and guidelines for water supply and sanitation in rural communities and small towns, as well as attract extemal funds to the sector. CWSA was originally created as a division of the Ghana Water and Sewerage Corporation in 1994, reporting to the Ministry of Works and Housing (MoWH). CWSA has an adequate staffing level of 196 with 33 staff working at the head office in Accra and 163 staff working in 10 Regional Offices (RWSTs). It was agreed that this staffing level will remain constant. Oversight of CWSA operations will be provided by CWSA Board (which should be in place by CWSP-2 effectiveness) and MoWH. At present, CWSA's operational costs are about 5bn Cedis with 2.7bn Cedis going to staff salaries and compensation. GoG has cominitted itself to guarantee the core operations of CWSA by an annual contribution of 5bn Cedis (indexed to 1999) to the sector. Additional funding will be provided on a "fee-for- service" basis, to be piloted by IDA under CWSP-2. Initially, loan proceeds will provide 5 percent of the value of disbursed annual investments of CWSP-2 (including both Components 1 and 2). At the beginning of each year CWSA will receive 75 percent of this amount as an advance payment. The total amount will be reconciled at the end of the year based on the actual disbursements. Ninety percent of the World Bank contiribution will be allocated to the operating costs (excluding staff compensation) of the 4 regions participating in CWSP2. This will be shared by theRWSTs (70 percent) and Head Office (30 percent). The remaining 10 percent will be allocated for staff development in the 4 regions (which could include an incentive pay approved by CWSA Board and the State Enterprise Commission). Since this portion of the fee is designed as a staff incentive package, RWST staff would be eligible to receive this compensation only if the region achieves its agreed investment targets. Once the key decisions for the introduction of the management fee to be applied across CWSA are adopted by the CWSA Board, this 5 percent World Bank contribution could be used for broader institutional strengthening of CWSA (and not just targeted to the CWSP-2 regions). CWSA would submit a workplan for the use of these funds to the annual review conference. Eligible expenditures include vehicles, equipment, staff remuneration, consultant fees, study tours and other training. The funds cannot be used to cover salaries for core CWSA staff or basic CWSA operating costs which should be covered by GoG.  -15- 5. Social: The project requires that communities pay 5 percent of capital costs and all of O&M. Since the project will offer a variety of service levels (and correspondingly a variety of prices), poor communities should not have a problem joining the project. The project's monitoring and evaluation (M&E) system will monitor the types of communities accessing the project, to assess the percentage of poor being reached. Special efforts will be made to ensure that poor communities (which are sometimes the more remote ones) are informed about the project and given ample opportunity to participate if they choose. Orientation for project stakeholders will include discussion of socio-cuhural issues such as gender. Those providing technical assistance to communities during subproject preparation will ensure that the various community subgroups are involved in decision-making, proposal development and WATSAN fonration. Women in rural areas traditionally play a strong role in household water supply and sanitation, and there is a variety of experience in Ghana on ensuring the appropriate involvement of men and women in projects. This project will build on that experience, promoting active involvement of women and men in project planning, O&M activities and WATSAN committees. This will be done through specific actions, including the requirement that women representatives sign all community agreements. Furthermore, training will be given, when needed, to enable community members to effectively undertake project roles. A participatory M&E process will be used to ensure that all stakeholder groups and subgroups are involved appropriately throughout the project. Through this process, communities and other stakeholders will decide on indicators and monitor project progress. Their input will be used to guide the project, so that any social issues that arise can be quickly addressed. Community indicators will supplement a standard list of indicators to monitor project performance (linked to the APL triggers and the logical framework 6. Environmental assessment: Environment Category B Building on progress made under CWSP-1, CWSP-2 aims at increasing service coverage and achieving effective and sustainable use of improved CWS services in villages and small towns. CWSP-2 will sensitize communities to the environmental aspects of their subprojects, and train them in the sustainable use of water and sanitation facilities. The approach is meant to incorporate environmental concerns hito the project design and focuses on environmentally sound criteria for siting boreholes and wells, construction methods for well- heads and aprons, waste water disposal techniques, and appropriate on-site latrine location. Thus, there is no need for an environmental analysis of CWSP-2, however subprojects will have to meet environmental standards as described in the POM. In terms of capacity building at the community level, the Ghana EPA has offices at the district level and will assist DAs in environmental education and community awareness. Technical assistance will also be provided to assist in training of DAs to handle environmental and related matters, in particular, the implementation of any mitigative measures. The proposed training programs will primarily focus on water source contamination, ground water depletion and vegetation loss, reduction in waste water production, erosion prevention and control, proper human waste disposal, and hygienic use of water and sanitation facilities. The latter will be further supported through the project's hygiene education strategy. CWSP-2 will support the monitoring of water quality, particularly ground water contamination. The Project Operational Manual includes a section covering environmental criteria for subproject appraisal, environmental requirements for contractors, and terms of reference for technical assistance. As necessary, CWSP-2 will coordinate its efforts with the ongoing Village Infrastructure Project and the recently created Water Resource Commission, and will use existing environmental guidelines for watershed management and related issues. The approach applied in this project, when properly implemented, will achieve the set project objective with mifimal or no environmental impact. 7. Participatory Approach (key stakeholders, how involved, and what they have influenced or may influence; if participatory approach not used, describe why not applicable): a. Primary beneficiaries and other affected groups: CWSP-2 follows a demand-driven, participatory approach. The principal stakeholders are the communities that will benefit from the new systems. Community women and men will have essential roles throughout the  -16- project process and decide whether or not to apply to join the project. Should they become part of the project, they will decide on the type of system and level of service they want, based on cost and other factors and will manage these systems. The project is planning a participatory M&E system, and community members will be involved in periodically assessing the progress of the project. b. Other key stakeholders: Other key stakeholders include, local govenunent (DAs), otherESAs, CWSA, the private sector (including NGOs) and relevant government ministries (Health, Education, Finance, Science and Environment and Local Govenmment). Representatives from these groups will meet at least annually to discuss sector performance and specific priority issues. They will be part of the participatory M&E process and have key roles in project implementation and coordination. Identification/ Implementation Operation Preparation Beneficiaries/community groups COL COL, IMP IMP Private Sector/NGOs COL COL, IMP IMP Academic Institutions CON CON Regional Government COL COL COL Local Govemment COL COL, IMP IMP Other donors COL COL F: Sustainability and Risks 1. Sustainability: The sustainability of the water and sanitation facilities rests on two key elements: A. Community willingness and capacity to manage and sustain services: Experience under CWSP-1 and elsewhere in the country demonstrates that community management of systems is feasible and promotes sustainability. The participatory mid-term review of CWSP-1 indicated that conununities felt a sense of ownership for their systems, were involved in key project decisions, and were collecting funds for O&M. A study of a project, using community management in the Upper East Region found that after eight years all systems were still functioning to user satisfaction with a management committee in place and 98 percent of communities indicating they have funds set aside for O&M. Under CWSP-2 communities will play even stronger roles in key areas of the project. For example, they will be involved in contracting for provision of community level goods and services. This should further increase their sense of ownership and help prepare them for on-going O&M roles. They will be required to demonstrate their commitment to service improvement up-front, by taking the initiative to apply for the project, prepare a proposal, make a cash contribution, and undertake organizational responsibilities. To help communities manage their services in the long-term, capacity will be strengthened in community organization, operations and maintenance, fmancial management, hygiene education, and effective water usage and disposal. B. Availability of goods and services in the local markets, accessible by the communities: This will be achieved by working through district and regional-based private and NGO organizations. The project will include intensive capacity building to help these agencies better respond to conununity demand, support an enabling environment for small business start-up, and look at the longer term incentives to keep these agencies functioning, especially in selling spare parts and providing technical assistance to communities. The public sector will also have to play a supportive role, especially at the DA level.  -17- 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Risk Risk Rating Risk Minimization Measure From Outputs to Objective Community demand does not guide investment N Ensure that project rules are widely decisions, thereby jeopardizing sustainability. promoted and enforced and that political influences do not interfere in community expression of demand. WATSAN Committees/Water Boards do not have M Performance of WATSAN committees has sufficient capacity to manage and sustain their been positive under the first project, but fabilities. trainhig and long-term availability of TA are needed. Community members do not internalize hygiene S On-going hygiene program will be education messages and do not improve behavior assessed for impact and, if required, practices. improved. Linkages will be made with MoE and MoH Efforts are not made to ensure that women M Ensure that women representatives sign all participate in key decision making before, during community agreements and involve them and after project implementation. in activities before the planning process starts. Private sector and NGOs do not have sufficient M Link after sales services and spare part long-term incentives to continue to deliver goods distribution to the investment component and services. by establishing decentralized supply capacity. DAs are not committed to CWSP and are not N DAs will have to allocate resources to willing to allocate resources in the long-term to participate in project. TA will be provided support community management. to DAs, CWS activities integrated into other district development activities. Strong reliance on community management rather than DA support for sustainability. Sector policies are not upheld by other agencies and M Strengthen CWSA's leadership and projects in Ghana advocacy role in sector, ensure that other IDA-funded projects adopt NCWSP rules. From Components to Outputs Communities are not able nor willing to formulate N Project preparation will develop and test FMPs, make fnancial contribution and contract strategies for community/district goods and services (with DA support). procurement. Project will build capacity CWSA/DAs do not have capacity to promote M Develop and test procedures during project, plan, appraise and approve sub-projects preparation. Private sector and NGOs do not have capacity for M Ensure adequate packaging of contracts timely delivery of goods and services. and build capacity. CWSA/RWST are not willing to shift role from M Develop procedures during project implementor to Fund manager and facilitator preparation as part of the POM. Good collaboration and participatory dialogue do N Ensure that stakeholders have a forum to not exist between stakeholders at all levels voice opinions and influence directions of the sector and that CWSA is open to participatory dialogue. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)  -18- 3. Possible Controversial Aspects None G: Main Loan Conditions 1. Effectiveness Condition Letter of GoG policy, including commitment to CWSA/sector fmancing. CWSA Board in place. Project Operational Manual endorsed by CWSA Board and MoWH and discussed with other sector stakeholders. Signing of Subsidiary Agreement between GoG and CWSA and opening of project account. 2. Other [classify according to covenant types used in the Legal Agreements.] Annual GoG contribution to the sector is deposited into CWSA account each year. CWSA operates within the approved budget. H. Readiness for Implementation The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [ ] 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [x] 1. b) Not applicable. [12. The procurement documents for the first year's activities are complete and ready for the start of project implementation. [x] 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [ ] 4. The following items are lacking and are discussed under loan conditions (Section G): 1. Compliance with Bank Policies 1. This project complies with all applicable Bank policies. Je it/.Sara Letitia A. Obeng eterC.Harrold yam eader Sector Manager/Director Country Manager/Director  -19- Annex 1: Project Design Summary GHANA: Second Community Water and Sanitation Key Performance Hierarchy of Objectives Indicators Monitoring & Evaluation Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Improved living conditions and % increase of households Project records (MIS) and Improved living conditions health of people in villages and with improved living surveys. and health contribute to small towns. conditions due to safe water increased productivity and and improved sanitation poverty reduction. services available and used within the comnumity. Program Purpose: End-of-Program Indicators: Program reports: (from Purpose to Goal) Extend coverage of sustainable # of communities adequately Impact surveys. Water and sanitation services water and sanitation facilities to 85 using, managing and are effectively used and are percent of rural population in sustaining improved service. sustained in order to achieve Ghana by 2009. (Vision 2020) desired quality of life and health improvements. Project Development Objective: Outcome I Impact Project reports: (from Objective to Purpose) Indicators: Increase coverage and achieve 550,000 people with access to Project MIS and impact Continued GoG and donor effective and sustahied use of CWS and adequately using, surveys in a sample of commitment and fnancial improved community water and managing and sustaining their communities. support to the subsector sanitation services in villages and improved services by end of throughout the proj ect period. small towns in 4 regions. Phase 1. 32 districts with functioning Progress reports, field Procedures developed by private sector delivery system surveys, implementation CWSP-2 expanded to country of goods and services to support missions. program. support and sustain CWS by end of Phase 1. CWSA operates efficiently to Progress reports, annual assume its role of NCWSP stakeholder and participatory facilitator and policy program reviews. development.  -20- Hierarchy of Objectives Key Performance Monitoring & Evaluation Critical Assumptions Indicators Output from each component: Output Indicators: Project reports: (from Outputs to Objective) 1. Demand-responsive community 1.1 # of communities that Project MIS and progress Project is adequately proposals for improved services submit acceptable proposals reports, field supervision promoted in all eligible appraised and approved by DA. which are appraised and reports, # of female communities and districts so approved by DA according to WATSAN executive that community demand appraisal criteria. committee members. guides investment decisions Acceptable proposals (priority given to require: genderbalanced communities that are WATSAN committee/water prepared and express board, community decision- demand) making and service level selection, financial Women participate in key contribution from users, decisions and in facility adequate management plan, management. community bank account, clearly defined O&M plan. 2. Water and sanitation facilities 2.1 # of water facilities Project MIS and progress Private sector and NGOs are constructed in project areas. constructed in eligible reports, field implementation able to deliver quality goods communities. support reports. and services in a timely manner (see output 4). 2.2 Approximate population served with adequate water facilites 2.3 # of conununities where 50 percent or more of households have latrines. 2.4 # of institutional facilities completed. 3. Watsan committees and water 3.1 # of gender-balanced Project MIS and progress Watsan Committees/Water boards formed and trained in watsan committees and/or reports, participatory M&E, Boards have sufficient organization, management and water boards trained and surveys, implementation capacity to manage and community members in hygiene functioning. support missions. sustain the facilities. education. Community members internalize hygiene education messages and improve behavior practices. 4. Private sector and NGO 4.1 # of service providers Sufficient long-term capacity for long-term delivery of (POs, TAs, artisans, incentives for private goods, equipment and services to contractors, suppliers, etc.,) sector/NGOs to deliver goods communities strengthened. trained and/or operational at and services in a competitive the district/comnumity levels. manner.  -21- 5. DA capacity strengthened to 5.1 # of DAs with active Project MIS, progress and DAs are committed to provide support to coimnunities in district W&S programs, audit reports, implernentation CWSP-2, are willing to planning, implementation and trained and with capacity to support missions. allocate resources and sustaining of services. fulfill role in CWSP-2. provide long-term support to community initiatives. 5.2 # of contracts signed by commnunity and/or DA. 5.3 percent of participating Reports, Field visits Private sector and NGOs DAs with certified audited accept project orientation accounts. towards district and community contracting. 6. Efficient CWSA facilitation of 6.1 CWSA operates Progress reports, stakeholder Sector policies are upheld by NCWSP, policy strengthening and efficiently within approved assessment, annual review, other agencies and projects in management of CWSP-2. budget lines. audit reports. Ghana 6.2 Amount of resources Annual Review. disbursed by CWSA relative to approved budget. Annual review and other stakeholder consultations. 6.3 Consensus built and sector policies and guidelines improved periodically through consultation with broad range of stakeholders. Project Components / Sub- Inputs: (budget for each Project reports: (from Components to components: component) Outputs) Component 1: Subproject Grants Subproject grants: US$21 M; CWSA quarterly and annual Community able and willing for community development and includes: TA for community progress reports. to formulate proposals, make water and sanitation facilities in development and training, Bank disbursement data. financial contribution (and villages and small towns engineering studies (for small Independent audit reports. contract goods and services - towns) and construction with DA support). grants for community/DA activities. CWSA and/or DAs have capacity to promote project, plan, appraise and approve subprojects. Component 2: Sector Support Consulting services; US$3.2 Implementation support Private sector and NGOs and Training M limited goods and missions. have sufficient capacity to equipment and capacity deliver. building for public, private agencies; R&D, training and material development, sector policy development. Component 3: Consulting services, US$2.5 Implementation support CWSA managed efficiently ProgramManagement M limited goods and missions. and within given budget. equipment for CWSA, recurrent costs.  -22- Annex 2: Project Description GHANA: Second Community Water and Sanitation 1. Community Subprojects Component: The subproject component will provide grants to communities and schools through their DAs for construction of water and sanitation facilities and to finance technical assistance and community development activities to strengthen community capacity to plan, implement, operate and maintain water and sanitation facilities in an effective and sustainable manner. 2. Sector Strengthening: This component will support (a) local providers of goods and services (private sector and NGOs), (b) DAs and their District Water and Sanitation Teams, and (c) national program development 3. Program Management: This component will include CWSA remuneration on a fee-for-service basis for the incremental costs of managing CWSP-2 and providing technical assistance to the DAs. By Component: Project Component I - US$21.0 million Community Subprojects: All subprojects will respond to community demand and require a financial contribution from the community and DA. Subproject rules and procedures are summarized below and detailed in the Project Operational Manual (POM). The project cycle is attached to this Annex. The physical works to be financed include: * Protected communal hand-dug well with or without a water lifting device; * Communal boreholes equipped with handpumps; * Mechanized borehole with overhead tank, limited distribution network and communal stand pipes (house connection would be paid by users); * Surface water supply system based on slow sand filtration, storage and distribution network with standpipes; * Protected spring source, with or without a simple distibution network and storage; * Rainwater catchment; * Household and school latrines; * Other water and sanitation technologies could be considered, as long as they meet all technical, environmental, fnancial and sustainability requirements. All civil works will be accompanied by the following community development/technical assistance (TA) activities: (a) Up-front TA through proposal stage: community and/or school mobilization; formation of gender- balanced Watsan or water board; technical, environmental and financial guidance to assist community make informed choice about preferred service level option; engineering services and technical design for small town water systems, assistance with organizing community contribution, design of follow-on training program (hygiene education, financial management, O&M, etc.) and proposal completion. (b) Community development: assistance in subproject implementation (i.e. contracting, works supervision, procurement of goods, etc. Watsan/water board training in administration, operation and maintenance; hygiene education and other relevant training included in the subproject proposal. Subproject Component Rules District selection All districts within project Regions are eligible to benefit from the project, and will be allocated an investment ceiling each year by the RWST/CWSA, in consultation with the regional authorities. However, in order to access subproject grants, DAs would have to (a) contribute 5 percent of investment cost of  -23- anticipated subprojects for the district, (b) appoint qualified technical staff to manage subprojects implementation, (c) prepare a rolling district water and sanitation plan (DWSP), and (d) submit acceptable subproject proposals and procurement plans (approval conditions are outlined below). Community selection Communities are initially selected by the DA based on criteria that include: poverty, existing water and sanitation facilities, district-development plans, and expressed willingness of community members to contribute 5 percent of the cost and assume full responsibilities for O&M of the selected facilities. Communities will be requested to submit an application form and deposit a minimum fee in their bank account. Only communities that have submitted an application will receive technical assistance to prepare a funding proposal. Proposals that fully meet the appraisal criteria will be funded, on a first-come, first-serve basis. Subproject appraisal criteria The subproject appraisal process will be undertaken by the DA. This is strictly a technical review and its purpose is to make sure that the subproject meets all criteria, including: minimum service level (number of people per facility), environmental, technical, social, financial and institutional criteria. In addition, the WATSAN will have to be recognized by the DA and the Water Board legally recognized. RWST will be responsible for the final funding approval. Financial policy The investment cost of water and latrine subprojects shall be financed through a 10 percent contribution from the DA and the community (the community and/or school will pay at least 5 percent) and the project providing a grant of 90 percent. In small towns, individuals who demand a higher level of service (i.e. a house connection) will be expected to pay the full incremental costs. The community and/or school contribution of 5 percent shall be made before subproject appraisal. For small towns, half the contribution shall be made before drilling (in the case of the need for pre-feasibility work) and the other half shall be paid before detailed design. The project will establish a per capita subsidy ceiling, initially set at $30/capita for point sources and $45/capita for small towns. Technical assistance and training for communities will be fully financed by the project. Different options will be tested for the fmancial policy for household latrines, including (a) a project subsidy to cover the slab and vent pipe, (b) implementation of a revolving loan fund, or (c) other options that will be agreed between CWSA and IDA. In order to test mechanisms for achieving higher levels of cost recovery, the project will pilot test methodologies to prioritize communities with a higher effective demand, i.e. willing to pay 10 percent or more of the investment cost Technical design criteria For boreholes, the grants for water supply shall finance a basic level of service of 20 liters per capita per day with one water point serving a maximum of 300 persons within 250-500 meters. Hand-dug wells should serve 100-200 people. In the case of small towns, the current population shall be used in sizing the distribution system with an estimated consumption of 30 I/cap/day. However, the design should consider a 15-year population, and the source designed appropriately. Although a lower service level may be initially constructed, the design should allow for future expansion and service level upgrading. Minimum content of socialprocess All subprojects shall include technical assistance and community development activities to ensure adequate assistance to the community in making informed choices, organization, subproject implementation (including contracting and works supervision), administering funds, and achieving effective and sustained use of their facilities. Hygiene and sanitation promotion activities will be clearly defined in the community and school proposals. Linkage between community andDA Conmnunities shall be involved in all stages of the project cycle. Each time a task or decisions that affect their subprojects are made on their behalf by the DA, the community shall be consulted or involved. Conununities shall sign-off on all official documentation pertaining to subproject implementation (i.e. contract award, payment certificates, completion certificates).  -24- Supporting documentation CWSA has prepared documents that will be used to prepare and appraise subprojects and control the management of funds. Those marked with an asterisk form part of the POM, and can only be modified with prior Bank approval. 1. Project promotion flyer 2. Community application form 3. Subproject proposal format (*) 4. Subproject appraisal format (*) 5. Letter from the DA to the community informing if proposal is approved or rejected 6. Funding request for package of subprojects from DA to CWSA 7. Subproject Agreement between CWSA and DA (*) 8. MOU between DA and community (*) 9. Standard contract documents for goods, works and services 10. Completion Certificate (*) 11. Community user group constitution 12. MOUDA/CWSA Project Component 2 - US$3.2 million Sector Strengthening Component: The goal of this component is to strengthen stakeholder capacity in order to ensure adequate and timely provision of high quality goods and services at the local level. This will consist of support for: (a) the private sector and NGOs (as providers of hardware and software services), (b) the public sector (DAs and DWSTs), and (c) national Program development. Chapter 5 of the Project Operational Manual provides details on this component. The component will be implemented in a demand-driven, participatory way in order to maximize efficiency and effectiveness. Support and training will be provided on an as-needed basis, as determined jointly by those receiving support and CWSA. A checklist of possible areas of skills training will be developed for each type of sector actor. These checklists will be used by districts and RWSTs to prepare training plans. A simple, focused orientation module will be developed for CWSP-2 stakeholders. This will include a basic, overall section along with short sections which can be used with specific sector actors (for example, a section to be used with hand dug well contractors would focus in detail on the project rules and components dealing with hand dug well activities. A section for software providers would go into more depth on project approaches and procedures relating to software). Overall orientation would also cover awareness of environmental concerns and socio-cultural issues, such as gender. (a) Support to the providers of goods and services engaged in CWSP-2 regions: Support will be provided in three ways: training, logistical support and simplification of procedures to encourage participation of small-scale entrepreneurs. The long-term objective is to ensure that there is a competitive and efficient private sector available at the district level to provide quality goods, works and services to communities. The project will therefore seek to increase the number of providers, as well as ensure the quality and competitiveness of their work. Specifically, support will be provided to drilling contractors, drilling consultants and supervisors, hand-dug well contractors, spare parts suppliers, sanitation contractors, area mechanics, small town water system operators and providers of training and community development services. The training will be contracted out by RWSTs to qualified training institutes, including for example, TREND, ISODEC, GAS, etc. (b) Support to District level public sector actors participating in the project: The project will support District Strengthening in three ways (a) orientation courses for DA personnel, (b) DWST training, and (c) logistical and operational support for DWSTs. Orientation sessions: will be implemented by RWST for District Assembly staff, education officers, school health program coordinators, and other relevant personnel. The orientation will cover infonnation about CWSP-2 the demand-based nature of the project, contracting arrangements, financial management,  -25- etc. In addition, CWSA will produce and distribute an easy-to-use district level Project Operational Manual. DWST strengthening: CWSP-2 support to DA and DWST strengthening will be tailor-made and complement other ongoing DA capacity building efforts. To build the capacity of the DWSTs, newly participating DAs will be allocated start-up sums not exceeding US$8,000 in the first year, while repeater DAs will have a US$5,000 ceiling. Eligible expenditures include setting up of office space, furniture and equipment, motor bikes, staff training, other support to DWST and Environmental Health Officers. (c) National Level Program Support: Limited funds are available for consultancy services, equipment and training to support the National Community Water and Sanitation Program development. This component will only fmance activities that are not covered by the Program Management Fee, and will include, for example, initial equipment and vehicles for RWSTs, participatory program reviews by all stakeholders, topical research, mass media campaigns for disseminating hygiene education, external impact assessments, exchanges with other countries, and other special studies (for example, strategies for reducing unit costs of boreholes, sustainable spare parts distribution, etc.) Project Component 3 - US$ 2.5 million Program Management: The cost is estimated at US$2.5 million, however, the actual amount will be staff salaries covered by GoG (US$1.3 million) and five percent of funds disbursed by CWSA to satisfactorily implement Components 1 and 2. This component will support the staff and operating costs of CWSA to implement CWSP-2. The first portion, estimated at $1.3M, include GoG's contribution to staff salaries, compensations, office costs and other operating expenditures. This will be financed from the Sb cedis annual allocation received by CWSA. In addition, the Bank will remunerate CWSA on a "fee-for-service" basis for incremental costs, of facilitating project implementation and providing technical assistance to the districts.  -26- Project Cycle The guiding principle of subproject implementation is to empower the communities to identify, plan, contribute, select, implement and sustain their facilities. In accordance with the demand-responsive approach, the project cycle is as follows: Information and Promotion The information and promotion of the project shall be in two stages. The first stage will inforn all the districts in the participating regions through workshops to solicit their interest and to vet their willingness and ability to implement the project. Districts will be assessed and selected based on criteria developed for new-entry districts and the current participating districts. The Regional Water and Sanitation Teams and Regional Coordinating Councils will be responsible for this activity. This activity ends with the signing of a memorandum of understanding (MOU) between the Regional Water and Sanitation Teams and the District Assemblies, and the opening of a project bank account by the DA. In the second phase of the promotion and information process, selected District Assemblies will go to the communities and promote the project through the local media. Flyers and Application forms will be distributed. Identification Communities (including schools) will organize smaller meetings in their area to discuss and identify interest in the water and sanitation project, and any assistance required to complete a subproject proposal. Communities will fill in an application form, and show their willingness to participate in the project and indicate their water and sanitation situation needs. Application is open to all communities. Each interested community will open a bank account and deposit a minimum amount of 200,000 cedis to show commnitment. Pre-selection The DA will nominate a team to carry out community pre-selection. The following criteria will be applied: population, distance of existing water supply and time since last application or formal indication of need to the District Assembly, other development projects undertaken by community, health issues, etc. The results of the pre- selection will be made public through the local beating drums, community meetings, local FM stations and District Assembly notice boards. This pre-selection process allows the DA to choose a correct number of communities it can serve within a project cycle, based on financial and staffing capacity within the DA. It also attempts to establish transparency and avoid disappointing communities that will not be attended to, in any year, by reducing the number of full-blown proposals that will need to be prepared. Finally, the process is a critical step in ensuring that investments will be programmed to respond to community demand. Proposal Formulation Pre-selected communities will prepare subproject proposals, and can receive support from 'Technical Assistants' contracted by the District Assembly. The proposal will contain all the information required to adequately appraise the subproject. The DA will set a deadline for proposal submission. Appraisal The Appraisal process will use clear criteria to evaluate the funding requirements of each proposal. Appraisal will be undertaken by the Technical SubCommittee of the DA and the RWST. Appraisal will be a one- step process only for point sources but may involve a two-step process for small towns requiring pre-feasibility work. Once a proposal meets all appraisal criteria, it should be funded. Appraisal criteria include: * Technical and environmental feasibility of the proposed civil works and goods * Evidence that community made an informed choice about preferred service level * 5 percent capital cost contribution deposited by community in bank * Facility Management Plan, including procedures for O&M and tariff collection * Plans for improved hygiene, environmental protection and sanitation  -27- * Existence of gender-balanced Watsan/water board * Financial: total costs, compared to the established per capita subsidy ceiling Funds Disbursement Approved subprojects wil be packaged by the DA and submitted to the RWST for funding. The RWST will review the subprojects costs, using a standard unit cost database, and agree with the DA on the financing and procurement plan for the subprojects. The RWST will also verify the DA has its 5 percent capital cost contribution in the bank. A subproject agreement will be signed between the DA and RWST. Funds will be then be transferred from CWSA to the DA project account, in tranches (30 percent, 40 percent and 30 percent). The District Assemblies will transfer funds to communities or schools which opt to undertake contracting themselves. Contracting and Community Development Contracting of goods, works and services will be carried out by both the DAs and communities using procedures detailed out in the operational manual. Software contracts will be let out for technical assistance for community development activities, works supervision, hygiene education, training of WATSAN Committees, establishment of community operation and maintenance capability, feasibility studies and training. Construction Construction involves the building of the facilities by private sector contractors. Completion All completed works shall be inspected by DAs and certified satisfactorily completed by the community before the last payment is made. The last payment certificate shall be signed by the on-site supervisor as provided for in the contract document. This document must be produced by the contractor before the last payment is made. A sample of the completed works will also be inspected by the RWST. A sub-project completion report shall be co-signed by the community and the DA to indicate that they are satisfied with the completed works. A guarantee period of 1 year will be provided for the major civil works, and payment conditions will be established in the contract documents. Operation and Maintenance Operation and maintenance will be the sole responsibility of the conununity. Backstopping technical services, however, will be provided by the DA and the RWST. These services could include: - Training of communities in the operation and maintenance of their facilties - Ensuring the availability of pump spare parts in the system - Training of Area Mechanics to carry out repair and installation. - Promoting and establishing linkages to other support facilities * Support for entering into a service management contract with small town operators. Auditing The RWSTs accountants and CWSA internal auditors will audit DA accounts on a continuous basis before each funding tranche is approved and transferred. In addition to the regular internal auditing procedures followed by the DAs, CWSA will hire an External Auditor to review the financial management practices of the DAs and communities, as well as visit a sample of communities to verify the quality of the facilities and the effectiveness of the community training activities. On the financial side, special attention will be paid to: * Compliance with Bank procedures * Whether community related procurement is being carried out according to methods prescribed in the operational manual * Whether prescribed methods result in efficient use of funds * Whether community reporting is effective Monitoring and Evaluation Monitoring and evaluation will be an ongoing process carried out by the communities, district assembles and the community water and sanitation agency.  -28- THE SUB PROJECT CYCLE PI PROMOTION by DA and RWST MONITORING & EVALUATION APPLICATION by Community/DA/RWST by Community to DA AUDITING | COMMUNITY by DA/CWSA PRE-SELECTION t by DA O&M PROPOSAL by Community assisted by FORMULATION DA/Private Sector by Community witi TA t (contracted by DA) SUPERVISION & COMPLETION REPORT PROPOSAL APPRAISAL Community & others by DA (technical team) and t RWST assistance CONSTRUCTION & Point Sources Small Towns CONSTRUCTION & I ~~~~~~~~~~~~~~~st Phase COMMUNITY DEVEOPMENT One Step Only initial contribution by Community, Private Sector Fuil borehole testing and NGO community Final design t contribution CONTRACTING 2nd Phase Responsibility for contracting: Full contrbution - Subproject: DA - Pilot Subproject: corrununities Final appraisal SUBPROJECT FUNDING APPROVAL DISBURSEMENT by RWST/CWSA  -29- Annex 3: Estimated Project Costs GHANA: Second Community Water and Sanitation Local Foreign Total Project Cost By Component US $million US $million US $million 1. Subprojects grants 21.10 0.00 21.1 2. Sector Strengthening 2.70 0.50 3.20 3. Program management 2.50 0.00 2.50 4. PPF Refinancing 0.80 0.00 0.80 5. Unallocated 0.40 0.00 0.40 Total Baseline Cost 27.50 0.50 28.00 Physical Contingencies 0.00 0.00 0.00 Price Contingencies 0.00 0.00 0.00 Total Project Costs 27.50 0.50 28.00 Total Financing Required 27.50 0.50 28.00 Since most of the project cost is accounted for by financing for sub-projects, and physical targets are not the principal objective, no contingencies have been provided for sub-projects. Any increase in the average subproject cost would be reflected in a smaler number of subprojects being implemented. Given the projected 36-month execution period for the project, no contingencies have been calculated for project administration either.  -30- Annex 4: Cost Benefit Analysis Summary GHANA: Second Community Water and Sanitation Introduction The second Ghana Community Water and Sanitation project (CWSP-2) seeks to consolidate and extend the achievements of the first project. The primary objective of CWSP-2 is to increase water supply coverage in runal areas and strengthen cost recovery for water services from beneficiaries. To achieve these objectives, phase one of the ten-year APL will invest in water facilities for approximately 550,000 people in rurl areas, and assign responsibility for operations and maintenance costs to beneficiaries, as well as require a small contribution to capital costs for project participation. It is intended that increases in communities' capital contributions, indicating enhanced community capacity to replace these systems, be one of the triggers for the subsequent phases of the APL. The project also includes a component for rehabilitation of existing water systems in small towns. The project requires communities to initiate project participation, and validate their commitment and need for the project via a five percent contribution towards the expected capital costs. Ten percent of the ureal water component funding is reserved for communities with a higher effective demand expressed through their willingness to make at least a 10 percent contribution to the expected capital costs. That is, a share of available project funding will be invested on a competitive basis. This will further the notion of demand responsiveness and be an indicator of the importance of water projects when they compete for cash contnbutions with other sectors such as health and education. The self-selected project communities will choose their preferred level of service from a menu. of options. The selection of specific investments will be subject to negotiations among prospective users and district assemblies. The final size of the community and the level of service that will be achieved is not known at this point, and would be determned during project implementation. However, the project design ensures that technical solutions would be economically viable. Agreement to project rules regarding cost recovery is a pre-requisite for project participation. In particular, the project rules require that user charges cover operation and maintenance expenses, and that communities confmn and demonstrate their willingess to adopt these charges. To ensure that investments are and remain economically viable, subproject performance will be monitored and infornation collected on an ongoing basis. Conceptual basis of assessing economic benefits In rural areas, consumers use water for drinking, cooking, bathing, washing and productive uses, such as cooking for sales, construction and so forth. A distinction between residential and commercial users is not made. The water quality required depends on the purpose or use. Brackish water might be acceptable for washing but not for drinking. People in the rural areas rely on a variety of traditional sources, such as rivers, ponds, springs and rain water. Both the quality and (time) price of water from these sources are different, and each water source serves different needs. When alternative sources, such as wells andboreholes become available, they are potential substitutes for water from other sources. The incremental quantity of water supplied under a project can be divided into two parts: one part replaces the previous sources and quantity of water used, the other part is a net increase in water consumption. In this context, benefit of the first part is equal to the savings of economic costs of consumers who no longer use the former water sources. Benefit of the second part is equal to the area below the demand curve between the with-project and without-project use of each consumer. It is important to have a profile of consumption patterns which indicate the quantity of water used and the amount of time and/or money spent for water from different sources. For CWSP-2, such a profile is provided by the Impact Assessment study. In general, research has established that the value of consumers' time is close to the market wage rate for unskilled labor. In the analysis for CWSP-2; the minimum unskilled wage rate is used as the basis for deriving the value of time for rural Ghanaian communities.  -31- Summary of Benefits and Costs: The impact assessment of CWSP-1 provides the basis of the economic analysis for CWSP-2. The analysis focuses on the community level subprojects in rural areas. For our calculations, results from one of the regions studied are used. It is assumed that water consumption in project communities and from all sources is replaced by water from improved sources provided under the project. The study results clearly show an increase in water demand after provision of improved water sources, providing evidence of suppressed demand. The additional demand has not been valued separately, but has been subsumed under the valuation of replaced water consumption. This may lead to underestimation of the benefits from provision of an improved source. Health benefits have also not been included separately, mainly because there is little evidence of the existence of substantial, health related benefits. It is assumed that health benefits known to users are captured in their willingness to pay for good quality water. The time saved per bucket of water used is estimated from the impact assessment study. The time thus saved is valued at 75 percent of the unskilled minimum wage rate to allow for differences between the minimum wage and the unofficial rates prevalent. It is also assumed that only half the time saved can actually be spent in commercially productive uses. Thus, half the time savings are valued in money terms. These savings provide the base case retums for a well orborehole provided under the project. The decrease in the time cost of water leads to increased demand for water; the benefits due to increased consumption are subsumed in the assumption of consumption levels of 20 lpcd. For the base case, the NPV of a well is US$1,602/, and the intemal rate of return 35 percent. For aborehole the NPV is $758/, with an intemal return of 18 percent. A project rate of return is not attempted here; such a calculation would be based on an assumed distribution of community choices of capital investments. It is considered more important to establish that each of these possible choices generates acceptable economic returns. The returns to the phase one investment will be estimated at the end of three years.  -32- Annex 5: Financial Management GHANA: Second Community Water and Sanitation 1. The Community Water and Sanitation Project-2 (CWSP-2) is a follow up project to CWSP-1 which is due to close end of December 1999. The Community Water and Sanitation Agency (CWSA) which implemented the first project will be responsible for the implementation of this second project. 2. The fmancial management system used by CWSA during the implementation of CWSP-1 has been adequate, however certain deficiencies in the areas of the accounting software, mainly security features, adequate and quality of data entry checks, and others are being addressed. In this regard a new draft accounting manual has been prepared by a consultant which is being reviewed for finalization. In addition, DANIDA is providing assistance to CWSA in the improvement of the Financial Management Information Systems in operation at CWSA. This work is being undertaken in close coordination with the Bank to ensure that the renewed system complies with BP/OP 10.02 on financial management. 3. CWSP-2 will operate on a decentralized basis in four regions. CWSA will have overall responsibility for guiding, supervising, monitoring, evaluating and reporting on project activities. CWSA will also implement the Sector Strengthening and Program Management components, while DAs and communities will implement the Subproject component. CWSA's regional offices (RWSTs) will provide technical support to the DAs. Accounting and Financial Arrangements 4. There is little IDA experience in Ghana for implementing such a decentralized project. All experiences, especially in the Agriculture sector, have only achieved partial decentralization with implementation control vested in the center. The Village ifrastructure Project (VIP) is designed to ensure decentralized implementation, however it has only started and it will take sometime before lessons can be derived. Due to the lack of capacity at the district leveL adequate arrangements and resources in the areas of capacity building, monitoring and supervisory roles of CWSA and its regional offices have been included as components of the project to ensure effective implementation at the district level. 5. The Project Operational Manual (POM) details the funds flow anrangement from the center to the regions and districts. The objectives of these procedures are to ensure consistent reporting from the districts and regions, the roles and responsibilities of the center, the regions, the districts and the communities. 6. The Districts will maintain simple but adequate books of accounting to enable them record, account and report on all financial resources received and disbursed at the Districts. Simplified reporting formats (included in the POM ) have been developed for use by the districts. 7. The District's consolidated budgets for the appraised and eligible subprojects derived from community proposals will be reviewed for completeness and approved by the RWSTs before they are forwarded to Head Office (HO). The HO will then release funds intranches straight to District bank accounts opened specifically for CWSP2. The DA will also deposit their 5 percent contribution to subproject costs into this account, while communities will maintain their contributions in their own (Watsan/water board) account. 8. The Districts will submit fnancial reports and all supporting documentation to the RWSTs, as described in the POM, in order to receive subsequent disbursements for their subprojects. The Regions will also submit their regular financial reports to HO on a monthly basis. 9. HO will then consolidate all these reports into one comprehensive financial statement on the project. 10. HO will be responsible for the preparation of the annual financial statements of the project. The financial statements will be prepared in accordance with Intemational Accounting Standards and with requirements of FARAH handbook. The financial statements will include at least Statements of sources and uses of funds, reconciliation of special account, a balance sheet and accompanying notes.  -33- Auditing 11. There shall be two project audits undertaken each year: one for activities up to June (interim audit), and the other at the end of the calendar year (final audit). These audits of the financial statement shall be conducted by independent auditors acceptable IDA. The auditors shall provide opinions on: (i) the project financial statements, (ii) statement of expenditures, and (iii) the special account. In addition, the auditors should review the DA project accounts. The auditors will also prepare management report to outline any weaknesses identified during the audit and make recommendations for improving them. Project Management Reports 12. An assessment has been done and this project will not be able to produce the full set of PMRs, however some of the reports will be produced on a quarterly basis and further work will continue to integrate all of reports required with the FMIS being put in place with assistance from DANIDA. For the first year of project implementation, the financial project management reports will contain: (i) summary of sources and uses of fiuds; (ii) uses of funds by project activities and (iii) cash withdrawals (disbursements); and (iv) reconciliation of Statement of Special account. It is expected that the project become LACI compliant by the second year of implementation.  -34- Annex 6: Procurement and Disbursement Arrangements GHANA: Second Community Water and Sanitation Procurement Guidelines 1. Procurement will follow the World Bank guidelines for procurement of goods, works and services; Guidelines: Procurement under IBRD Loans and IDA Credits (1995 edition revised January 1999), and Guidelines: Selection and Employment of Consultants by World Bank Borrowers (1997 edition revised September 1997 and January 1999). Preference for domestically manufactured goods will be aRowed in accordance with World Bank Guidelines. National Competitive Bidding (NCB) procedures will include: (a) explicit statement to bidders of the evaluation and award criteria; (b) local advertising with public bid opening; (c) award to lowest evaluated bidder, and (d) foreign bidders would not be precluded from participation in NCB. Shopping procedures will include inviting for quotations from at least three different suppliers, setting a deadline for submission of quotations and opening them at the same time. The project will use Bank's Standard Bidding Documents for procurement of goods and works and the Standard Request for Proposals for selection of Consultants. For small contracts, other simpler versions of documents acceptable to the Bank wil be used. These simpler versions will be included in the Project Operational Manual (POM). A draft copy of the POM indicates that appropriate procedures, standardized terns of reference and sample documents for use by DAs will be included. Procurement Notices 2. A General Procurement Notice [GPN] will be published in the UN Development Business and in a National paper of wide circulation as provided for in the Guidelines. The GPN would be updated annually in case ICB procurement would not be completed in the first year of the project. Specific Procurement Notices [SPN] will be required for goods and works contracts be procured on ICB and NCB basis and for consultant contracts exceeding US$ 200,000 equivalent. SPNs will [as a minimum] be published in local newspapers of wide circulation. 3. As part of promotion and creating awareness to the private sector' of business opportunities generated by DAs and Communities in water and sanitation programs, CWSA will prepare and publish annually in national and regional newspapers of wide circulation a Promotional Procurement Notice [PPNJ using a format to be prepared and included in the POM. The PPN will contain [but not be limited to] information on estimated demand and contract opportunities by DAs and communities [rural and small towns] for bore-hole drilling, hand dug well construction, hand pumps and hand pump spare parts and installations of various water extraction systems. Procurement Plans 4. Except for community subprojects, a global procurement plan covering the entire project period and a specific procurement plan for the first year of the project showing contract packages, and for each package its estimated cost and procurement method and processing times till completion [including bidding documents for items to be procured under ICB in the first year of the project] will be prepared and sent to IDA before credit effectiveness. By September 1 of each year, the Project will prepare and submit to IDA a specific procurement plan for the particular year as part of annual work program. For subprojects to be implemented by DAs and communities, no global or annual procurement plans will be prepared as subprojects will be generated by the communities from time to time during the project implementation period. However the appraisal document of each approved subproject will include a procurement schedule for completing the subproject. 1 Private sector includes local drilling companies, potential manufacturers, suppliers of water pumps and spare parts, district-based contractors, artisans and mechanics.  -35- Scope of Procurement 5. Procurement under the project will involve the following: (i) Conmnunity subprojects component for facilities estimated to cost US$ 17.2 million will consist of, but not necessarily be limited to, bore-hole and hand-dug well constructions, pumping equipment, water supply and distribution systems for small towns, protection of water springs, household water catchment facilities and latrines. These facilities will be prepared by communities through the subproject appraisal and approval process. The community development part of the component [estimated to cost USS 3.80 million] will involve community mobilization and assistance in preparation of subprojects, employment of consultants for engineering services for design and supervision of water, and for capacity building activities/training. Contracts under community subprojects will be packaged by DAs and procured on basis of demands from communities, following procurement procedures specified in the POM. No ICB procurement is envisaged in the community subprojects. (ii) Goods estimated to cost US$ 0.90 miflion for sector strengthening and for supporting project management by CWSA will consist of an initial and limited supply of vehicles, equipment and miscellaneous items of supplies and furniture. Contracts for these goods will be packaged by CWSA, incorporated into the project's Annual Work Plan (AWP) and Budget and procured following specified procurement procedures. DAs will also procure a limited amount of goods as specified in their annual institutional strengthening plan to be approved by CWSA. (iii) Consultant Services: the project will fnance consultant contracts estimated to cost US$ 1.00 million awarded to individuals, firms and NGOs to facilitate training of CWSA and District personnel in project planning, implementation and financial management, including audit, monitoring and evaluation activities, consultation and advocacy, information and education, research and development, etc. Shortlists for contracts costing less than US$100,000 may consist of national firms or individuals only. Where appropriate, the Bank's Standard Request for Proposals (SRFP) will be used for the selection of consultants. (iv) Capacity Building: sector strengthening and training activities estimated to cost US$ 1.20 nillion will cover training of CWSA and District personnel in delivering various services under the subproject components, and also for consultation and review workshops. By September I of each year, the Project would prepare and submit to IDA a training plan [as part of the Annual Work Plan] for the particular year for IDA's review and comments before it is implemented. (v) Program Management: An estimated amount of US$ 2.50 niXlion [of which the Bank will contribute US$ 1.20 million] is included in the project for payment to CWSA as a management fee for carrymig out the various project activities. The fee will be disbursed to CWSA in annualtranches (see Annex 2). IMPLEMENTATION ARRANGEMENTS. 6. Procurement for goods, works and services under the subprojects will be carried out by the DAs (except for small towns up to a value of US$1.8 million which will be procured by CWSA) packaging several subprojects to the extent possible in accordance with the subprojects prepared by the WATSAN Committees, appraised by the DAs and approved by CWSA. The DAs will be responsible for calling for bids, receiving and evaluation of bids, awarding and signing contracts, supervising performance and making payments. However, according to current Govemment procurement procedures, contracts costing above a certain threshold require approval of Regional or CWSA Boards. Where this will be the case, it is expected that this procedure will be waived and if not, the Regional or CWSA Board will only be responsible for approving the proposed contract award, leaving all other responsibilities to the DAs. The DAs will be encouraged to try various ways of packaging the delivery of water points, e.g., use of one contractor to drill bore-hole, construct well, supply and install pumping equipment, train selected members of the community on operation and maintenance of the water point and hand over to the WATSAN a working water point.  -36- 7. As part of capacity building and in order to ensure participation by WATSAN Committees in the procurement process of subprojects, the DAs will include selected members of WATSAN Committee members in specific procurement steps i.e. bid opening, evaluation and award of contracts, supervision and certification of completed contracts. DAs will receive technical support from theRWSTs, as well as from contracted firms and NGOs in [but not limited to], production of technical designs and specifications, bidding documents, cost data and supervision of engineering consultants. DAs will build capacity in the WATSAN Committees so that they can delegate some of the responsibility for procurement and accounting functions to the better organized WATSAN Cominittees [small towns will be some of the early targets]. This capacity will enable the WATSAN Committees to take on contracting for [but not limited to] procurement of hand- dug wells, purchase of pumps, protection of water springs and construction of latrines. 8. Procurement capacity of the CWSA at headquarters is weak but it is considered adequate for the kind of procurement that is expected to be carried out under the project. However, RWST capacity is adequate to support and provide technical assistance to the DAs. Procurement capacity inn the District Assemblies is weak as indicated in procurement capacity assessment under other bank fnanced projects. This fact is recognised in the project design. Under the project implementation arrangements, capacity of WATSAN Committees will be enhanced by DAs while that of the DAs will be enhanced by capacity building efforts and support by the CWSA Regional Teams, by any contracted firms andNGOs, as well as by use of procurement and fnancial procedures to be specified in the Project Operational Manual. PROCUREMENT METHODS 9. Contracts for civil works will be awarded on basis of NCB but contracts estimated to cost below US$ 50,000 for drillng and other works may be by solicitation of quotations from not less than three contractors or by direct contracting to fimns with on-going similar contracts. Goods contracts estimated to cost more than US$ 100,000 will be by ICB, contracts estimated to cost between US$ 100,000 and US$ 50,000 will be by NCB and below US$ 50,000 by shopping procedures. Direct contracting may be resorted to in exceptional circumstances, on a case by case basis, for which IDA's approval must be obtained. Consultant services will follow the guidelines. Services estimated to cost less than US$ 100,000 may, with IDA's agreement, be procured by sole source selection. Services for supervising drilling may be procured under contracts in accordance with the provision of Least Cost Method of Selection specified in the Consultant Guidelines. Bank Review 10. Goods contracts estimated to cost the equivalent of US$100,000 or more and civil works contracts under community subprojects estimated to cost the equivalent of US$ 250,000 or more will be subject to review in accordance with the procedures set forth in paragraphs 2 and 3 of Appendix I of the Procurement Guidelines. First two contracts for each type of work (i.e. bore-holes, hand-dug wells, small towns piped systems) per Region will be subject to prior review, regardless of cost. 11. For Consultants services, all terms of reference and single source contracts will, regardless of cost, be subject to prior review. Contracts estimated to cost US$50,000 for individuals and US$100,000 for fimns or more will be subject to prior review in accordance with the procedures set forth in paragraphs 2 and 3 of Appendix I of the Consultants Guidelines. Contracts not subject to prior review will be selectively reviewed by IDA during project implementation and will be governed by the procedures set forth in paragraph of Appendix I of the Procurement Guidelines and the last sub-paragraph of paragraph 2(a) and paragraph 4 of Appendix I of the Consultants Guidelines. Disbursement Allocation of loan proceeds (Table C) Use of statements of expenses (SOEs): * Contracts less than US$100,000 equivalent for goods * Consultant contracts of less than US$ 100,000 for firms and US$50,000 for individuals * Tramining  -37- Operating Costs Special Account: The special account will have an authorized allocation of US$500,000 to cover 4 months of eligible expenditure. An initial deposit of US$300,000 will be made to the project account opened in a commercial bank upon effectiveness of the credit. Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Procurement Method1 Expenditure Category ICB NCB Other2 N.B.F. Total Cost 1. Community Subprojects 0.00 14.00 7.10 0.00 21.10 (0.00) (13.00) (6.40) (0.00) (19.40) 2. Goods 0.60 0.10 0.20 0.00 0.90 (0.60) (0.10) (0.20) (0.00) (0.90) 3. Consultant Services and Training 0.00 0.00 2.30 0.00 2.30 (0.00) (0.00) (2.30) (0.00) (2.30) 4. Miscellaneous (PPF) 0.00 0.00 0.80 0.00 0.80 (0.00) (0.00) (0.80) (0.00) (0.80) 5. Management Costs 0.00 0.00 2.50 0.00 2.50 (0.00) (0.00) (1.20) (0.00) (1.20) 6. Unallocated 0.00 0.00 0.40 0.00 0.40 (0.00) (0.00) (0.40) (0.00) (0.40) Total 0.60 14.10 13.30 0.00 28.00 (0.60) (13.10) (11.30) (0.00) (25.00) 1/ Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies 2/ Includes shopping, direct purchase and selection of consultants N.B.F. = Not Bank-Financed (includes government expenditures) Miscellaneous includes PPF refund.  -38- Table B: Thresholds for Procurement Methods and Prior Review Contract Value Contracts Subject to Threshold Procurement Prior Review Expenditure Category (US$) Method (US$) 1. Works Over 50,000 NCB Over 250,000 and first two contracts for each type of work per region Drilling: Below 50,000 Quotations from at least 3 First two contracts Other: Below 50,000 contractors or Per region and direct (exceptionally) direct contracting contracting 2. Goods Over 100,000 ICB All contracts 50,000-100,000 NCB None Below 50,000 Shopping None 3. Services Above 100,000 QCBS All contracts Below 100,000 Other methods (i) All contracts above $50,000 and the first two contracts below US$50,000 for individuals; (ii) First two contracts below US$100,000 for firms; (iii) All sole source (iv) All TORs. Total value of contracts subject to prior review: US$6.0 million out of US$20.4 million Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: Once every 6 months (includes special procurement supervision for post-review/audits)  -39- Table C: Allocation of Loan Proceeds Expenditure Category Amount in US$ million Financing Percentage (1) Community Subprojects 19.40 100% (2) Goods 00.90 100% of foreign expenditures 90% of local expenditures (3) Consultants' Services and Training 02.30 100% (4) Management Fee 01.20 100% (5) PPF Refund 00.80 100% of amounts disbursed (6) Unallocated 00.40 Total Project Costs 25.00 Total 25.00 Notes: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower. (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower.  -40- Annex 7: Project Processing Schedule GHANA: Second Community Water and Sanitation Project Schedule Planned Actual Time taken to prepare the project (months) 21 First Bank mission (identification) 02/15/98 02/15/98 Appraisal mission departure 06/25/99 06/25/99 Negotiations 07/08/99 07/12/99 Planned Date of Effectiveness 01/01/2000 Prepared by: Community Water and Sanitation Agency Preparation assistance: N/A Bank staff who worked on the project included: Name Specialty Jennifer Sara Team Leader - Water & Sanitation Specialist Wendy Wakeman Community Development Specialist Abdou Salam Drabo Institutional Specialist Raimundo Caminha Community/Rural Development Specialist Peter Akari Civil Engineer Robert Roche Sr. Sanitary Engineer Charles Boakye Projects Officer (Ghana Office) Guenter Heidenhof Sr. Public Sector Management Specialist (Ghana Office) David Seth Warren Social Protection Specialist Kavita Sethi Economist Mbuba Mbungu Procurement Specialist (Ghana Office) Frederick Yankey Financial Management Specialist (Ghana Office) Edeltraut Gilgan-Hunt Environmental Specialist Said Al Habsy Sr. Counsel David Webber Sr. Disbursement Officer Emestina Attafuah Program Assistant Lizmara Kirchner Team Assistant Quality Team Gerhard Tschannerl Principal Municipal Engineer (Ghana Office) Richard Verspyck Principal Water & Sanitation Specialist Lee Travers Principal Water & Sanitation Economist  -41- Annex 8: Documents in the Project File* GHANA: Second Community Water and Sanitation A. Project Implementation Plan Draft Project Operational Manual Draft Implementation Plan B. Bank Staff Assessments Back to Office Reports Capacity Building Component Small Towns Study C. Other Documents/Studies carried out by CWSA Mid-Term Review of CWSPI Impact Assessment of Community Water and Sanitation Projects Unit Cost Study Water Quality Test Study Hygiene Education and Sanitation Study Small Towns Study Reports from Pilot Projects Implementation Project Preparation Team reports to CWSP2 steering committee Management Fee Study (funded by DANIDA) Review of the Financial Management System (funded by DANIDA) Handpumps and Spare Parts Study (funded by DANIDA) Sector Capacity Building Report (funded by DANIDA) CWSA Annual Reports (1996, 1997, 1998) CWSA Donor Conference Reports Legal Recognition of Watsans *Including electronic files  -42- Annex 9: Statement of Loans and Credits GHANA: Second Community Water and Sanitation Difference between expected Original Amount in US$ Millions and actual disbursementsa Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd Number of Closed Projects: 74 GH-PE-40557 1999 GOVERNMENT ERSO II 0.00 180.00 0.00 177.78 0.00 0.00 GH-PE-40659 1999 GOVERNMENT COMMUNITY DEV. 0.00 5.00 0.00 5.00 0.00 0.00 GH-PE-50615 1999 GOV. OF GHANA PUBSECTOR MNGT.PROG 0.00 14.30 0.00 14.07 0.00 0.00 GH-PE-970 1999 GOVTOFGHANA TRADE GATEWAY& INV. 0.00 50.50 0.00 47.44 1.17 0.00 GH-PE-974 1999 GOVT OF GHANA NAT FUNC LIT PROG 0.00 32.00 0.00 32.00 0.00 0.00 GH-PE-946 1998 GOVERNMENT NAT.RES.MANAGEMENT 0.00 9.30 0.00 9.24 3.71 0.00 GH-PE-949 1998 GOVT OF GHANA HEALTH SCTR SUPPORT 0.00 35.00 0.00 27.13 3.33 0.00 GH-PE-41150 1997 GOVERNMENT VILLAGE INFRASTRUCTU 0.00 30.00 0.00 23.44 .1.87 0.00 GH-PE-45588 1997 GOVTOFGHANA PUB. FIN. MGMT. TAP 0.00 20.90 0.00 16.36 11.49 0.00 GH-PE-42516 1996 GOVERNMENT PUBLIC ENTERPRISEtPR 0.00 26.45 0.00 18.50 5.11 0.00 GH-PE-943 1996 MINISTRYOFFINANCE NON-BANKFININSAST 0.00 23.90 000 17.39 14.35 0.00 GH-PE-957 1996 GOVERNMENT HVWYSECTINV.PROG 0.00 100.00 0.00 59.47 6.31 0.00 GH-PE-973 1996 GOVT OF GHANA URBAN ENV.SANITATION 0.00 71.00 0.00 49.81 34.47 0.00 GH-PE-975 1996 GOVERNMENT BASIC EDUCATION 0.00 50.00 0.00 42.39 22.25 0.00 GH-PE-926 1995 GOVT OF GHANA THERMAL (P-VII) 0.00 175.60 0.00 42.13 41.65 10.88 GH-PE-948 1995 REPOFGHANA EDUC/VOC.TRNG 0.00 960 0.00 5.74 4.17 -0.03 GH-PE-98 1995 GOVERNMENT PRIV SECTOR DEV 0.00 13.00 0.00 8.52 737 0.00 GH-PE-962 1995 GOVERNMENT OF GHANA FISHERIES 0.00 9.00 0.00 4.62 2.49 0.00 GH-PE-968 1995 GOVERNMENT MININGSEC.DEV&ENV 0.00 12.30 0.00 5.80 3.94 0.00 GH-PE-924 1994 TBD COMMUNITY WATER &SA 0.00 21.98 0.00 8.25 6.87 0.00 GH-PE-936 1994 GOVERNMENT LOCAL GOVT DEV. 0.00 38.50 0.00 14.96 6.90 0.00 GH-PE-961 1994 GOVTOFGHANA AGRICSECTOR INVEST 0.00 21.50 0.00 4.17 1.91 -2.42 GH-PE-930 1993 GOVERNMENT LIVESTOCK 0.00 22.45 0.38 2.71 3.66 3.27 GH-PE-953 1993 GOVERNMENT NATL ELECTRIFICATIO 0.00 80.00 0,00 10.62 13.89 7.36 GH-PE-956 1993 GOVTOFGHANA URBANTRANSPORT 0.00 76.20 0.00 7.97 7.94 -2.48 GH-PE-931 1992 GOVT OF GHANA AGRIC EXTENSION 0.00 30.40 0.00 5.83 5.46 5.46 GH-PE.918 1991 AGRICDIVERS (TREEC 0.00 16.50 1.85 4.82 5.88 -0.72 GH-PE-928 1991 AGRIC RESEARCH 0.00 22.00 0.00 0.76 -0.08 -0.08 Total: 0.00 1,197.35 2.23 666.92 212.37 21.24 Active Closed Projects Projects Total Total Disbursed (IBRD and IDA): 560.45 2,619.06 3,179.51 of which has been repaid: 0.00 250.23 250.23 Total now held by IBRD and IDA: 1,265.13 2,256.69 3,521.82 Amount sold: 0.00 0.38 0.38 of which repaid: 0.00 0.38 0.38 Total Undisbursed: 666.92 13.83 680.75 a Actual disbursements to date minus intended disbursements to date as projected at appraisal.  -43- GHANA STATEMENT OF IFC's Held and Disbursed Portfolio 3 1-May-1999 In Millions US Dollars Committed Disbursed IFC I1FC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1988/89/91/93 Bogosu 6.00 5.35 1.72 12.45 6.00 5.35 1.72 12.45 1989/91/93 Cont Acceptances 0.00 0.00 0.88 0.00 0.00 0.00 0.88 0.00 1989/92 Wahome Steel 0.87 0.00 0.44 0.00 0.87 0.00 0.44 0.00 1990 AEF Alugan 0.05 0.00 0.00 0.00 0.05 0.00 0.00 0.00 1990/91/96 GAGL 4.50 8.11 2.55 0.00 4.50 8.11 2.55 0.00 1991 AEF Packrite 0.06 0.00 0.00 0.00 0.06 0.00 0.00 0.00 1991 GHANAL 0.00 0.00 0.44 0.00 0.00 0.00 0.44 0.00 1991/92 Hotel Inv. Ghana 1.40 0.00 0.00 0.00 1.40 0.00 0.00 0.00 1992 AEF BMK 0.91 0.00 0.00 0.00 0.91 0.00 0.00 0.00 1992 AEF CFL 0.28 0.00 0.00 0.00 0.28 0.00 0.00 0.00 1992/93 Ghana Leasing 2.01 0.00 0.75 0.00 2.01 0.00 0.75 0.00 1993 AEF Afariwaa 0.18 0.00 0.00 0.00 0.18 0.00 0.00 0.00 1993 AEF GHUMCO 0.05 0.00 0.00 0.00 0.05 0.00 0.00 0.00 1993/96 ECOBANK 4.85 0.00 0.00 0.00 0.75 0.00 0.00 0.00 1994 AEF Shangri-la 1.10 0.00 0.00 0.00 1.10 0.00 0.00 0.00 1994 GHACEM 0.94 0.00 0.00 0.00 0.94 0.00 0.00 0.00 1995 AEF Dupaul Wood 0.44 0.00 0.00 0.00 0.44 0.00 0.00 0.00 1996 AEF Pako Bay 0.00 0.00 0.05 0.00 0.00 0.00 0.00 0.00 1996 AEF Tacks Farms 0.37 0.00 0.00 0.00 0.37 0.00 0.00 0.00 1997 AEF PTS 0.00 0.31 0.00 0.00 0.00 0.31 0.00 0.00 1998 AEFNCS 0.00 0.67 0.00 0.00 0.00 0.67 0:00 0.00 Total Portfolio: 24.01 14.44 6.83 12.45 19.91 14.44 6.78 12.45 Approvals Pending Commitnent FY Approval Company Loan Equity Quasi Partic Total Pending Commitnent: 0.00 0.00 0.00 0.00  -44- Annex 10: Country at a Glance GHANA: Second Community Water and Sanitation Sub- 9/29/98 POVERTY and SOCIAL Saharan Low- Ghana Africa Income Developmentdiamond' 1997 Population, mid-year (millions) 18.0 614 2,048 Life expectancy GNP per capita (Atlas methoc4 US$) 370 500 350 GNP (Atlas method US$ billions) 6.7 309 722 Average annual growth, 1991-97 Population (%) 2.7 2.7 2.1 Labor force (Y.) 2.7 2.6 2.3 GNP Gross per primary Most recent estimate (latest year available, 1991-97) capita enrollment Poverty (% of population below national poverty line) 31 Urban population (% of total population) 37 32 28 Life expectancy at birth (years) 59 52 59 Infant mortality (per 1,000 live births) 69 90 78 Child malnutrition (% of children under 5) 27 . 61 Access to safe water Access to safe water (% of population) 56 44 71 Illiteracy (% of population age 15+) 36 43 47 Gross primary enrollment (% of schcoo-age population) 76 75 91 _Ghana Male 83 82 100 _ Low-income group Female 70 67 81 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1976 1986 1906 1997 Economic ratios* GDP (US$ billions) 28 5.7 6.3 6.8 Gross domestic investment/GDP 8.9 9.4 18.7 16.0 Trade Exports of goods and services/GDP 157 16.6 27.2 24.8 Gross domestic savings/GDP 8.5 5.8 8 3 7.3 Gross national savings/GDP 7.7 5.1 10.4 9.6 Current account balancetGDP -a8 -3.6 -8.3 -6.4 .oes Interest payments/GDP 0.7 0.8 1.9 1.9 DomescInvestment Total debttGDP 257 47.9 96.8 93.9 Savings Total debt service/exports 5.8 28.5 27.1 33.7 Present value of debt/GDP .. .. 58.5 55.3 Present value of debtlexports .. . 211.2 218.1 Indebtedness 19764B6 1987-97 1996 1997 1998-02 (average annual growth) GDP 0.0 4.4 5.2 3.0 6.0 Ghana GNP per capita -2.8 1.6 2.4 0.4 3.1 Low-ircome group Exports of goods and services -7.4 7.5 19.8 -4.0 6.2 STRUCTURE of the ECONOMY 1976 1966 1996 1997 Growth rates of output and investnent(%} (% of GDP) 40 Ayiculture 50Q6 47.8 44.4 47.4 Industry 19.2 17.2 16.6 16.6 20 Manufacturing 131 11.1 9.4 9.5 o Services 30.2 35.1 38.9 36.0 04 95 s6 37 Private consumption 79.2 83.1 79.4 82.3 -401 General government consumption 122 11.1 12.3 10.4 _ GDI -..-GOP Imports of goods and services 16.0 20.1 37.6 33 5 1976486 1987.97 1996 1997 growthi rates ofexports and imports (%I (average annual growth) Agriculture 1.0 2.4 4.0 2 2 30.. Industry -58 4.6 4.2 4.8 Manufacturing -61 2.9 3.0 4.0 A Services 1.5 6.6 6.5 3.2 tO Private consumption -0.1 3.6 5.0 4.6 0 General government consumption 2.2 5.6 3.4 -5.5 92 93 55 S 9 Gross domestic investment -47 6.1 -1.4 17.7 10 Imports of goods and services -a8 5.2 12.1 -0.7 _Exports Imports Gross national product -01 4.5 5.1 3.1 Note 1997 data are preliminary estimates. The diamonds show four key indcators in the oountry (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete  -45- Ghana PRICES and GOVERNMENT FINANCE Domestic prices 1976 1986 1996 1997 Inflation (%) (% change) so.0 Consumer prices .. 24.6 45.6 27.9 so ) Implicit GDP deflator 28.1 41.7 33.1 29.6 40.. Govemment finance 20 (% of GDP, includes current grants) a I Current revenue . 13.6 19.2 17.6 92 93 94 95 96 97 Current budget balance .. 1.7 1.3 1.1 -GDP deflator -.*-CPI Overall surplus/deficit .. -3.3 -10.4 -8.6 TRADE 1976 1986 1996 1997 Export and import levels (USS millions) (US$ millions) Total exports (fob) .. 749 1,571 1,511 2,500 Cocoa .. 503 552 464 Timber .. 44 147 165 200.* Manufactures .. so Total imports (cif. 805 2,119 1,964 1 0.d* Food .. 44 64 64 1111113 Fuel and energy 125 261 278 s00 Capital goods 129 489 396 Export price index (1995=100) .. 99 91 92 91 92 93 94 95 98 97 Import price index (1995= 100) .. 76 102 96 cE>ports limports Terms of trade (1995=100) . 130 90 95 BALANCE of PAYMENTS (US$ millions) 1976 1986 1996 1997 Current account balance to GDP ratio (%) Exports of goods and services 891 797 1,728 1,676 o Imports of goods and services 951 968 2,388 2,265 Resource balance -59 -171 -661 -589 s Net income -42 -106 -141 -142 15 Net current transfers -4 73 276 296 -10 Current account balance -105 -204 -525 -435 Financing items (net) 46 147 513 461 Changes in net reserves 59 57 13 -25 -20 Memo: Reserves including gold (US$ millions) 113 624 606 466 Conversion rate (DEC, locaVLUS$) 2.4 89.3 1t637.0 2,053.0 EXTERNAL DEBT and RESOURCE FLOWS 1976 1986 1996 1997 (US$ millions) Composition of total debt, 1997 (USS millions) Total debt outstanding and disbursed 711 2,743 6,141 6,339 IBRD 38 134 44 30 G 64 A:30 IDA 56 446 2,530 2,617 Total debt service 52 228 476 578 F 422 IBRD 5 18 13 15 IDA 0 5 28 30 B 2617 Composhion of net resource flows Official grants 31 118 206 216 E: 1,344 Official creditors 19 217 419 350 Private creditors -8 77 -61 -76 Foreign direct investment -18 4 20 36 D:608 Portfolio equity 0 0 100 46 C: 654 World Bank program Commitments 25 99 275 51 A - IBRD E - Bilateral Disbursements 14 169 244 237 B IDA D - Other mutilateral F - Prnate Principal repayments 2 10 20 23 IC - IMF G - Short-terml Netflows 11 159 224 214 Interest payments 3 13 21 23 Net transfers 8 146 203 192 Development Economics 9/29/98  -46- Annex 11: Letter of Sector Policy GHANA: Second Community Water and Sanitation lr _ Ministryrof WorkssandHousing ASPF 4 and Am P. O. Box M.43 ~"* - ' v .4 s Accra, Ghana my RE NoY* .. Yo rM N .................. 18. < 1 Your Ref No RB [OIGHG (H A.... 19 ...... Telephone 665421 REPUBLIC OF GHANA COMMUNITY WATER AND SANITATION PROJECT-Il LETTER OF SECTOR POLICY MR. PETER HAROLD RESIDENT REPRESENTATIVE - THE WORLD 8ANK ACCRA Dear Mr Peter Harold, RE: GHANA'S SECTOR POLCIES AND STRATO M NITY WATER AND SANITATION SERVICES The purpose of this letter is to describe the sector policies that the Govemment of Ghana will follow during implementation of the Second IDA-financed Community Water and Sanitation Project (CWSP-2)_ Backaroun andsll The Government of Ghana launched the National Community Water and Sanitation Program (NCWSP) In 1994, as part of the overall restructuring of the Water Sector. The following Acts of Parliament have had impact on the water sector: Water Resources Commission (WRC) Act 522 of 1996, the Public Utilities Regulatory Commission (PURC) Act 538 of 1997 and the Community Water and Sanitation Agency Act 564 of 1998. In addition, a Water Sector Restructuring Secretariat was set up in April 1997 and has primarily been supporting the. urban water sub-sector to facilitate the transition to enhanced private sector participation- In that light, the Ghana Water and Sewerage Corporation (GWSC) is being converted to a limited liability company - the Ghana Water Company Limited (GWC), created on July 1,1999. The PURC is mandated to set tariffs whilst the WRC will have oversight responsibility over the entire weter resources of Ghana. Finally, the Environmental Protection Agency (EPA) and the Ghana Standards Board (GSB) are responsible for deflning environmental and drinking water quality standards.  -47- Furthermore, the sector is guided by the Govemment's overall decentralization policy, whlich transfers authority, responsibility and capacity from the Central Government. Sector Ministries and Departments to the District Assemblies (Local Govenmment Act 1993, Act 462 and L11589) by promoting grassroot participation with in administration of programmes. Although sanitation is a responsibility of the distnct assemblies, CWSA promotes an integrated approach to community water and sanitation. Presently, it is estimated that only 36% of the rural population have access to safe water while 1 1 % are estimated to have adequate sanitation. In the urban areas, water supply is estimated to extend to 76% of the population while 61% have sanitation facilities. Ghana's medium and long term plans in 'Vision 2020' gives priority to improved Rural Water Supply, Sanitation, Health and the Control/Eradication of Water Borne Diseases. The NCWSP aims at extending the coverage of sustainable rural water and sanitation facilities to 85% of the rural population bv thA vApr '>MQ uverall strategv for the Sector The Government will continue to subsidise investment in rural/small towns water and sanitation systems with the ultimate aim of improving the standard of living for people in such areas. In all cases, however, investments will be demand-responsive, require a minimum community contribution to the capital cost and communities will be responsible for operations, maintenance and management. Urban areas will follow an "utility- management approach" with private sector participation with a view to achieving cost recovery. As the urban water sub-sector is restructured, Government is making sure that the outcomes of this work do not negatively impact on the Community Water and Sanitation Subsector and operations of CWSA. During this transitional phas