Ghana - Water Sector Restructuring Project

Report No. PID7299 Project Name Ghana-Water Sector Restructuring Project Region Africa Sector Water Project ID GHPE56256 Borrower Government of Ghana Implementing Agency Ghana Water Corporation Date This PID prepared November 13, 1998 Projected Appraisal Date October 1, 1999 Projected Board Date January 15, 2000 1. Country and Sector Background. Water supply systems in Ghana deteriorated rapidly during the economic crisis of the late 1970s and early 1980s when Government's ability to adequately operate and maintain essential services was severely constrained. The economic recovery program the Government of Ghana embarked on during the mid-1980s set about to, among others, reform public enterprises by increasing their autonomy with the objective to create effectively managed, financially viable institutions. In the Water sector the focus was on the expansion and rehabilitation in the Accra-Tema Metropolitan Area in addition to technical assistance to the country's water supply agency, Ghana Water and Sewerage Corporation. In 1993, the Government of Ghana initiated a restructuring program of the water sector aimed at segregating responsibilities for urban water, rural water and sanitation, and sewerage. Late in 1995, the Government took initial steps to consider options for sectoral reform involving private sector participation, with the objective of improving levels of service and operational efficiency. Under current proposals, which have evolved from those initial steps, water supply for small communities will be the responsibility of the Community Water Supply Agency (CWSA - soon to be devolved from Ghana Water and Sewerage Corporation) and/or the District Assemblies, and responsibility for operation of urban water supply, comprising about 101 water systems in 10 regions, from source to end user, will be contracted to private operators in two separate packages under enhanced lease arrangements (meaning that the privator operators will also be responsible for some investment). 2. Project Objectives. The overall development objectives of the project are to: (i) improve the efficiency and effectiveness of urban water supply services; (ii) provide safe and affordable water supply service to unserved and low- income urban areas; (iii) increase the reliability of service. 3. Project Description. The proposed project will include the following components: Physical Works: The physical works component includes (i) rehabilitation of production and transmission facilities, (ii) network (including meters and connections) rehabilitation and extension, (iii) distribution extensions to  peri-urban areas and social connections, (iv) new connection and water meters, and (v) new production and transmission facilities. Restructuring: The restructuring component includes (i) financial support for the phasing in of tariff increases, in order to reach full cost recovery, (ii) technical and financial support for the Ghana Water Corporation in its establishment and initial operation as well as in assisting it with the monitoring of the private operators, and (iii) staff rationalization support. Institutional Development and Support: Contracts with private-sector operators will include performance targets and incentive-based remuneration. By this means, it is proposed to improve levels of service over a reasonably short time frame. The project will strengthen the monitoring capacity of Ministry of Works and Housing and of the Ghana Water Corporation, as well as the regulatory capacity of the Public Utility Regulatory Commission (PURC). The Project will also, if necessary, help strengthen PURC to function autonomously. 4. Project Financing. The project is estimated to cost US$285 million of which IDA will finance US$60 million. The Government of Ghana and Cofinanciers are expected to contribute with US$10 million and US$80 million respectively. Other sources of financing will account for the remaining US$135 million. 5. Project Implementation. Ghana Water and Sewerage Corporation will be transformed into a down-sized Ghana Water Corporation which will become the asset holder and will monitor operations. Ghana Water Corporation will be supported during its transformation by the Water Sector Restructuring Secretariat of the Ministry of Works and Housing. The Public Utilities Regulatory Commission will be the regulator. 6. Project Sustainability. The sector is anticipated to be financially in balance and self sustaining within the period of the lease contracts. 7. Lessons Learned from Previous IDA Involvement. Public sector arrangements for management and operation of utilities such as water supply do not increase efficiency in a sustainable way. Provision of technical assistance alone is not effective in building the necessary capacity. Lessons from sector operations in the region and Bank-wide suggest that efficiency can be obtained when the operators have a financial incentive to do so. Experience from PSP initiatives in West Africa and other developing countries suggests, among others, that (i) it is necessary to support reform with a parallel investment program; (ii) adequate public enlightenment is essential prior to reform, and (iii) specific efforts are needed to maintain the cooperation of all stakeholders, including particularly workers in the sector. 8. Poverty Category. The proposed project is a poverty-focused intervention, aimed at promoting private investment and implementing direct poverty alleviation programs. The key indicators would relate to improvement in the financial self sufficiency of the sector, improvement in the standard of service to customers, and increase in service to low-income areas. 9. Environmental Aspects. The project has a rating of B for the environmental category. An Environmental Assessment is to be carried out; the -2 -  impacts will depend on the concurrent investment program which is yet to be determined. 10. Program Objectives Categories. This proposed project would promote private investments and implement direct poverty alleviation programs. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending February 5, 1999. - 3 -