Nepal - Second Rural Water Supply and Sanitation Project

27310 Initial Project Information Document (PID) Last Submited to InfoShop on: 11/08/2001 08:01:28 PM Project Name NEPAL - Rural Water Supply & Sanitation Project II Region South Asia Regional Office Sector Water supply (75%); Sanitation (25%) Theme Rural services and infrastructure (P); Pollution management and environmental health (S) Project P071285 Borrower(s) HIS MAJESTY'S GOVERNMENT OF NEPAL Implementing Agency(ies) RURAL WATER SUPPLY & SANITATION FUND DEVELOPMENT BOARD Address: Lazimpat, Kathmandu, Nepal Contact Person: Mr. Raj Babu Shrestha, Executive Director Tel: (977-1) 414529; 410761 Fax: (977-1) 417899 Email: khaskosh@wlink.com.np Environment Category B (Partial Assessment) Date PED Prepared November 13, 2003 Auth Appr/Negs Date November 1, 2003 Bank Approval Date May 13, 2004 1. Country and Sector Background Main Sector Issues: Lack of consistency in application of 1998 Water Supply and Sanitation Sector Policy: Recognizing the need for improving or expanding service delivery, HMGN's 1998 national policy reflects a shift towards demand driven (as opposed to supply driven) participatory approaches to service delivery. However, the broad nature of policy directives outlined in the sector policy were interpreted differently by sector actors. The policy has thus failed to be adequately implemented, and has resulted a lack of consistency and confusion amongst stakeholders. Nevertheless, the 1998 sector policy has been successful in allowing the over 20 donors active within the sector to test a variety of approaches. The variety of financing mechanisms and approaches piloted/attempted have created innovations and pilots; but have resulted in a multiplicity of approaches leading to application of inconsistent criteria in areas such as scheme and community selection and the level of contribution expected from the community. As discussed below, these are further complicated by the lack of the clarity of the roles and responsibility of sector institutions. Lack of clarity of institutional roles and responsibilities: The main agencies dealing with rural water supply and sanitation are the Department of Water Supply and Sewerage (DWSS), the Rural Water Supply and Sanitation Fund Development Board (the Board) both reporting to the Ministry of Physical Planning and Works (MPPW). The MPPW is the line ministry responsible for formulating policies and plans in the sector, in close coordination with the National Planning Commission (NPC) responsible for overall national and sectoral planning including the annual and five year development plans. DWSS has been implementing a large share of rural water supply and sanitation schemes, a sub-sector in which the Board is also active. Many non-governmental agencies (IINGOs) have initiated programs to provide village and small-town water supply and sanitation services directly to communities. Under Nepal's decentralization process, local governments (LGs) are expected to play a growing role in service delivery, including water supply and sanitation. The Government has replaced the DWSS district and regional water supply offices by DWSS divisional offices and by district technical offices (DTO) under Ministry of Local  Development (MLD). However, clarity in the redefined roles of Government agencies to overcome the frequent overlaps in agency responsibilities is necessary. This should include, inter alia, a clear responsibility for coordination in the sector among sectoral agencies, cross sectoral agencies as well as donors to make the best use of the 5-7% of the total development budget allocated to this sector of which about two-thirds is financed by donors. Sustainable access to water supply and sanitation services: The Government water supply coverage is estimated at 72% which is on track with the MDG targets. Sanitation is estimated at 25%. However, the accuracy of such estimates is questionable as the reliability of actual coverage is suspect. It is reported that 10% of existing schemes need rehabilitation, more than 50% need major repairs and 11 % are not functioning at all while little less than 50% are not functioning to design capacity. There is thus a major need to scale up successful and innovative approaches of service delivery (example of which are available in Nepal) in the sector for sustainability. Inadequate focus on sanitation and hygiene improvement: Although a sanitation policy exists, absence of strategic focus to enhance sanitation and hygiene outcomes impede the gains made by increased coverage of water supply. Sanitation coverage is lagging way behind water supply coverage. Water supply, sanitation and hygiene improvement activities should go hand in hand to achieve the health benefits. Environmental/Water Quality: There are a number of environmental issues to be taken into account which do not feature prominently at policy or implementation levels. The low environmental risks can be avoided with careful planning and design. Potential problems include possibility of landslides from gravity schemes; drainage problems around artesian wells; pollution of aquifers due to poor quality well head construction and the siting of latrines close to well points; ponded wastewater around water points as breeding grounds for mosquitos and water borne and water related diseases. In addition, it is absolutely necessary to ensure that safe water both bacteriologically and chemically are delivered to the rural communities. The wastewater from road side tap stands flows on the surface of the road due to lack of drain. The presence of arsenic in groundwater has been detected recently in most of the Terai districts of Nepal. Efforts are underway to deal with this problem; but these need to be further strengthened as a priority. Lack of effective sector monitoring and evaluation: The Central Government does not really monitor the implementation of its sector policy nor does it have a system of effective performance and outcome monitoring of the sector. Budget allocations have not been tied to performance and only recently has budget release been tied to performance against the annual plan. Government Strategy: The Government's over arching objective for the sector is to increase sustainable access to basic drinking water supply and sanitation facilities thereby improving the health of the beneficiaries and lessening drudgery. The Government strategy is to revise the 1998 Water Supply and Sanitation Sector Policy for the Rural Water Supply and Sanitation sub-sector for clarity. The revised policy (in draft) which is expected to be approved shortly, outlines the key principles of policy and strategy and defines institutional roles and responsibilities. All sector actors are expected to confirm these principles for consistency. The following are the key principles of the new Rural Water Supply and Sanitation (RWSS) Policy: * provision of water supply and sanitation services will be based on "effective demand", and service standards will correspond to the affordability and willingness to pay of the consumers; with the Government subsidizing the basic service level (15 minute round trip to fetch water at 45 lpcd desirable) and users paying the incremental cost for better service;  * integration of capacity building and health and hygiene with water supply and sanitation; * adoptation of participatory service delivery, involvement of women and community ownership of assets; * defining the role of sector actors with the role of the Government limited to (i) financing and allocation of sector investments, and formulating necessary policies and legislation; (iii) regulating sector development and management including sector monitoring and evaluation; (MPPW has established a sector Monitoring and Evaluation (M&E) Unit whose operating costs will be funded out of His Majesty's Government of Nepal (HMGN) budget. It has obtained UK- Department of International Development (DFID) funding to help the Unit to design and operationalize a sector M&E system); * enunciation of consistent community cost sharing principles; (In this connection, the Government has issued a directive to all the sector actors to implement its policy on uniform community contribution to ensure that total of cash and kind contribution of at least 20% of the capital cost of hardware cost of water supply schemes is raised from the communities of which at least 1% should be in cash. However, to accommodate for the especially poor and disadvantaged groups, a minimal contribution of the capital cost will be adequate); * establish the Fund Board as a regular sector institution through an Act of Parliament. During the Tenth Plan period the Government aims to: (i) increase coverage of basic drinking water services to 85% (from 72%) of the rural population with gradually increasing drinking water service standards by the end of the plan period; (ii) provide suitable sanitation facilities in rural areas; (iii) decrease child mortality rates by reducing water borne and water related epidemics. The main Tenth Plan policies/strategies are to: * maintain regional balance while implementing new projects and accord high priority to rehabilitate, reconstruct and complete incomplete water supply schemes; * enhance the capacity of local bodies/user communities to assume responsibility to implement schemes; * select and prioritize water supply schemes using specific standards; * maximize, right from the development phase, the mobilization of local people's participation, resources and skills; * accord priority to low cost and sustainable small scale rural drinking water supply schemes; * emphasize regular monitoring and evaluation of drinking water and sanitation activities and undertake necessary policy reforms; * launch sanitation programs as an integral part of water supply projects; adopt the policy of operating water schemes on cost recovery basis. 2. Objectives The proposed project is a follow-on to the on-going successful Rural Water Supply and Sanitation Project [RWSSP I (Cr.2912-NEP)] scheduled to close in December 31, 2003. The follow-on project will adopt the approaches of the first project with some improvements. The proposed project aims to influence the broader sector institutional performance by leveraging the success of RWSSP I as well as expanding the proven impact of this approach on poverty reduction and social capital mobilization at the grassroots level. The objectives of the project are: (i) improved sector institutional performance and mainstreamed "Fund Board" approach in the Government's system and  (ii) improved health and hygiene benefits to the rural population by providing more inclusive and sustainable access to improved water supply, and sanitation facilities. The second objective, which is similar to RWSSP I, would be achieved, inter alia, by (a) integrating health and hygiene education with water supply; (b) reducing the time needed for collecting water thus allowing increased school enrollment and retention of girls; (c) assisting women to identify ways to earn income from time saved in carrying water; (d) strengthening governmental and non-governmental capacities to facilitate the delivery of rural water supply and sanitation services and (e) strengthening community capacity to sustain these efforts. As part of its effort towards gender inclusion, the project will support activities aimed at empowering and providing opportunities to women/girls as the primary beneficiaries. In addition to continuing the focus on involving women in the planning, implementation and management of the schemes, RWSS II will also make special efforts ensure that Dalit (former "untouchable castes") and Janajati (Indigenous Peoples) households in the catchment areas served are also included and that these groups participate fully in the planning, implementation and management of the schemes. 3. Rationale for Bank's Involvement The World Bank finances rural water supply and sanitation projects world wide and has accumulated vast international experience in community based approaches and has a multi-disciplinary knowledge and experience base to draw from. In Nepal, the Bank's critically analytical Water Supply and Sanitation Sector Issues Paper (I 993-Green Cover) has contributed to the Government sector policy as many of the ideas in this paper have been reflected therein. Most important (though unpopular initially), is the fact that this paper paved the way for positive sector institutional reform. Through a pilot field testing project - JAKPAS - the Bank helped the Government institute a service delivery mechanism to deliver sustainable water supply and sanitation services. Through its support for the on-going rural water supply and sanitation project, the Bank has assisted the Government of Nepal to implement a demand driven approach to participatory decision making and in empowering rural communities to manage their own water supply and sanitation facilities. Under the on-going Rural Water Supply and Sanitation Project (RWSSP I), the Bank did obtain commitment (in the form of a letter from Ministry of Finance (MoF)) that it would not provide funds to DWSS from HMGN resources, for schemes serving less than 500 people in all the five development regions in a phased manner. The RWSSP I approach is now much more widely accepted in the sector as an approach leading to sustainable schemes. The Bank, is therefore, placed at an advantageous position to refine the demand driven, participatory approach to rural water supply and sanitation services including social capital development in the rural communities of Nepal as well as to influence and seek broader sector reforms. 4. Description The tentative total project cost is US$ 31.5 million (including estimated physical and price contingencies) of which the World Bank will finance US$ 20 million; DFID Nepal has provided US$ 4.5 million equivalent to the Fund Board and the rest will be financed by contributions from the Communities and HMGN. The project will cover all the 75 districts of Nepal and will be implemented over a five year period, covering three complete scheme cycles. The project components are described below: Component 1: Strengthening and Operation of the Rural Water Supply and Sanitation Fund Development Board (US$ 6.0 million). The Board will be responsible for overall oversight of the project. This component would finance the Fund Board's operating and capital costs; training; capacity building of support organizations, service agencies and communities; audits; monitoring and evaluation, regular studies; pre-development phase costs; communication, information dissemination; and technical assistance costs. Component II: Selection and Construction of Water Supply and Environmental Sanitation Schemes (US$ 18.0 million)  This component would finance improvements in water supply and environmental sanitation services in some 1,230 communities serving about 738,000 people in five different batches (including two batches which were initiated under RWSSP I). This component would support community development activities, and construction of water supply schemes and environmental sanitation facilities. Community development activities would promote active participation of communities in all stages of decision making about the planning, construction, and management of their schemes, to increase local ownership and effective use and sustainability of the facilities. The capacity building activities would include community mobilization and organization; participatory community action planning; and non-formal education, hygiene and environmental sanitation awareness creation and technical support services for women which would include orientation and training to help women develop skills required to realize the benefits of time saved from fetching water by improving access to formal credit systems. Construction of water supply and environmental sanitation schemes would include: * construction, rehabilitation, reconstruction of gravity flow systems (including spring protection); shallow and deep tubewells, dug wells, and rainwater harvesting (where feasible). * catchment protection through reforestation, altemative energy sources for fuel wood, erosion control, and other site specific programs. * construction of environmental sanitation facilities including construction of appropriate household and institutional latrine facilities and drains for disposal of wastewater. Appropriate sanitation facilities would be supplied to about 40% of the project households in the Hills and 50% in the Terai. Grants, to be managed by the communities, would be used for small revolving funds to lend money to households for construction of latrines. A small institutional latrine component (with urinals and handwashing with soap facilities) for selected schools and health centers would maximize demonstration effects. Component III: Institutional Development Studies: (US$ 0.5 million) This component would support technical assistance to the Ministry of Physical Planning and Works to carry out sector assessment and monitoring, special studies such as low-cost technology options, water quality control at source, health impact studies, inclusion of poor families, janjati, dalits, gender, health and hygiene/sanitation impact; measuring results/changes in overall community development, health hygiene and sanitation practices, participation of school management committees and the students themselves in school health, hygiene and sanitation related matters; level of coordination maintained with local level relevant agencies; sustainability measures during implementation in place and use of social marketing in BCC for Healthy Home Survey (HHS) promotion and water disinfection). I. Strengthening and Operation of the Fund Board II. Selection & construction of rwss schemes UII. Institutional Development and Studies 5. Financing Source (Total (US$m)) BORROWER ($7.00) IDA ($20.00) UK: BRITISH DEPARTMENT FOR INTERNATIONAL DEVELOPMENT (DFID) ($4.50) Total Project Cost: $31.50 6. Implementation (a) Implementation Arrangements: The Implementation arrangements would be very similar to the on-going IDA supported RWSSP I, with improvements made for efficiency based on lessons of experience, with more functions being sub-contracted to  qualified and competent private/NGO sectors, as umbrella (Support Organizations) SOs, in different regions. The project would be implemented in over 1,200 communities in five batches in the five development regions of Nepal over a period of five years with a completion date of 2009. The first batch will cover primarily the implementation phase of some 280 Batch V schemes. Each subsequent batch will comprise 400 schemes. The overall responsibility for implementation would be with the Fund Board. To ensure sustainability of the schemes, the communities, assisted by SOs, will plan, design, implement, operate and maintain their schemes. The communities, with support from SOs, will register a Water Supply and Sanitation User Group (WSUG) which comprises of all the participating households and form a Water Supply and Sanitation User Committee (WUC), the executive body of the WSUG. The community based approach to scheme identification, design, construction, O&M ensures that the emphasis is not only on physical infrastructure but also in developing social capital. Furthermore, the Fund Board will support those schemes that have been approved by the District Development Plan and would encourage participation of local bodies District Development Committees/Village Development Committees (DDCNDCs) in cost sharing, supervision, monitoring and evaluation and post project support. The scheme cycle: The Fund Board has analysed the scheme cycle for gravity and groudwater schemes during the implementation of the first project. A detailed scheme cycle is developed for the five year implementation period from March 2004 to February 2009. Typically, each batch of the schemes would follow the following scheme cycle which takes into account seasons, harvests, holidays, technical aspects and availability of labor, as follows: * Pre-development Phase (12 months): The pre-dvelopment phase consists of the following activities: (a) pre- qualification of SOs -- primarily NGOs -- the Fund Board will identify the SOs and request them to forward their expressions of interest. The Fund Board will then assess the capacity of the SOs and pre-qualify them (5 months) and (b) pre-feasibility study and preparation - Pre-qualified SOs receive orientation and training on how to prepare pre-feasibility studies which are submitted to the Fund Board for screening. Staff (portfolio managers) review the site appraisal and technical appraisal reports which are then reviewed by the Technical Appraisal Committee (TAC) and approved or rejected by the Board. One important innovation in the pre- feasibility intake form which is completed by the SO and the Site Appraisal carried out by the Service Ageny (SA), is the addition of social mapping to the existing source mapping that was done in the RWSS I Project. This will produce a caste and ethnic profile of the households in the area served by the water source(s) to be harnessed by the scheme and will provide a baseline to monitor whether households from all castes and ethnic groups benefit in proportion to their presence in the community. * Development Phase (12 months): A contract is then signed with successful SOs for the development phase. The development phase lasts for about 12 months. Activities during this phase include orientation and training on the preparation of community action plan. Development of a community action plan includes carrying out a needs assessment, healthy home survey - establishing baseline and landmark for effective monitoring, training in hygiene and sanitation education, non-formal education (optional - which, if taken, does give hygiene and sanitation messages too), registering the WSUGs and promotion & building of latrines. It also includes the finalization of the implementation phase program where the communities contribute in cash and in kind and the completion of the detailed design. * Implementation Phase (13 months) begins after an audit of the development phase. This phase includes training of the community technician, construction activities, Women's Technical Support Services (WTSSs) and source protection, i.e., planting trees around the source area. This phase is a consolidation of all the phases with the development of a completed functioning water supply and sanitation scheme. * Post Implementation Phase (24 months): The post implementation phase is separated from the implementation phase in this project with an aim to follow-up periodically on the sustainability aspects of the scheme -  technical, social and community management including operation and maintenance. The project will support some nominal amounts in the SO contract to ensure that the SO will conduct quarterly follow-up sustainability monitoring visits and provide technical support. The Fund Board has studied the scheme cycle for groundwater schemes in the Terai and has a cycle covering 39 months: pre-development (5 +12) 17 months, development phase 12 months and the implementation phase 10 months. The post implementation phase is 24 months. Contrary to expectation, the scheme cycle for the groundwater scheme is longer than the gravity scheme as it takes into consideration all the factors in the gravity schemes plus the appropriate season for digging/drilling wells. The above scheme cycles should be used flexibly. The scheme M&E would provide useful information on the duration of the cycle. The project design allows flexibility to incorporate the lessons of one batch into subsequent batches and make appropriate improvements based on lessons of previous batches. The project will make every effort to study the scheme cycle for ways to reduce the total duration. Funds Flow and Disbursement Arrangements The Fund Board will prepare the annual budget in accordance with the annual program and implementation plan, and will be submitted to its Board for approval. Following the approval of the proposed program and budget by the Board, the Fund Board submits its program and request for the budget to HMGN via the Ministry of Physical Planning and Works (MPPW) for onward submission to the National Planning Commission (NPC) and the Ministry of Finance (MOF). The MOF reviews the request and approves the budget submitted by the Fund Board in the form as it is approved by the Board. HMGN releases the budget as block grants to the Fund Board in three tranches as per the fund release procedure of HMGN. The Fund Board Accounts created for the purpose of receiving all proceeds of block grants from HMGN, funds received directly from other organizations in the form of assistance or grants with prior concurrence of HMGN, and funds received from any other sources, is operated under the joint signature of the Executive Director and the Chief of the Administrative Division. The budget approved by HMGN will be indicated in the govemment's budget (Red Book) under a separate budget head in the name of the Rural Water Supply and Sanitation Fund Development Board. The Fund Board is required to refund the unspent balance to HMGN for any unspent balance out of the block grants received from HIMGN. Use of IDA resources is through a reimbursement process and a Special Account. For small expenditures, the Fund Board will spend from its own resources, and then submit claims for reimbursement for eligible expenditures. A Special Account will be established to facilitate quick payment of various activities under the project. The special account will be managed under the joint signature of the Executive Director and the Chief of the Administrative Division. Disbursements will be made against contracts with support organizations (NGOs) based on delivery of specific outputs in two phases - development phase and implementation phase - of various rural water supply schemes carefully selected and approved following certain approved criteria and norms. Disbursements will also be made for the procurement of various equipment and vehicles required for the Fund Board, and for consultancy services for payments of various services such as, supervision and monitoring of SOs provided by support agencies. Disbursements will also be made for various training and orientation programs, study tours, seminars and workshops. Communication materials, public awareness programs on health and sanitation will also be funded. Disbursements will also be made to finance incremental operating costs of the Fund Board on a declining basis. Financial Management (also see Section E - Summary Project Analysis and Annex 6) A financial management capacity assessment of the implementing agency, the Rural Water Supply and Sanitation Fund Development Board was carried out during preparation and is considered fully satisfactory. This will be  reviewed during appraisal. The Fund Board has a long experience of about 6 years implementing the Bank funded project, and has established a good financial management system which is operating smoothly. The Implementation Manuals and Operations Manuals (in two volumes) were prepared during the implementation of RWSSP I and were reviewed and approved by the Bank before they were implemented. Volume I of the Operational Manual contains detail guidelines on budgeting, accounting, internal control, procurement, inventory management and other administrative guidelines. These manuals have been updated from time to time, to reflect changes based on lessons learned during project implementation. They are adequate for the purpose of fund management. The Fund Board has two full time accounts staff headed by the Chief of the Administrative Division, which are considered satisfactory. The Fund Board is planning to recruit one more Accounts Officer, as the program expands under the new credit. The annual project accounts (including statement of expenditures and special account) of the credit will be maintained and will be audited by the Office of the Auditor General of Nepal (OAGN) as required by the Constitution of the Kingdom of Nepal, with audit reports due within six months of the end of each fiscal year. The Fund Board will also submit its financial statements within six months of the end of each fiscal year. The financial monitoring reports will be submitted on a trimester basis. (b) Institutional Arrangements: User Groups and User Committees: Water Supply and Sanitation User Groups (WSUG) are user groups registered under the Water Resources Act by local people willing voluntarily to continue necessary support for planning, implementation and operation of the scheme and to be directly benefitted from the scheme. A Water Supply and Sanitation User Committee (WSUC) is a committee elected from among the WSUG to be accountable to it acting on its behalf for planning, implementing and maintaining a scheme. The WSUG will be the main actor of the RWSS program and will organize, plan and implement their scheme to meet their demands. A Support Organization will provide assistance to the WSUG/WSUC to carry out its activities. Support Organizations (SOs): Support organizations are local, national or international level nongovernmental organizations (NGOs) or private sector organizations established or recognized under prevalent laws, and selected by the Fund Board to provide necessary support to WSUG/WSUC for planning and implementing schemes. The SOs will assist the Fund Board to disseminate information regarding the availability of support for water supply and sanitation services in rural areas under Fund Board approach. The SOs will assist communities to apply to the Fund Board and then provide assistance in technical and social aspects of the project, including social capital mobilization, awareness creation and community capacity development in identification, planning, implementation, operation and maintenance of RWSS schemes as well as periodic support during the post implementation phase to ensure sustainability of the services. The Fund Board could also contract out its functions to umbrella support organizations who would be responsible to mobilize and coordinate a number of SOs to assist local communities to plan and implement as many schemes as possible. Service Agencies (SA): SAs are legally recognized agencies recruited by the Fund Board to provide specialized services. The Fund Board uses a variety of SAs to assist it to do various activities such as: to organize and conduct a variety of training courses for SO staff to carry out monitoring and evaluation of development and implementation phases; SO field assessment, scheme site appraisals and follow-up legal registration; water quality testing, auditing of SO and community accounts, internal audit of the Fund Board account and so on. District Development Committee (DDC) and Village Development Committee (VDC): Under this project, learning from the experience of implementing the first project which required that the SOs to inform the DDC, District Water Supply Office (DWSO) and the VDCs five times during the scheme cycle, the Fund Board will ensure that the linkage with the DDCs/VDCs are strengthened beyond just informing them. The Fund Board will make it mandatory for the SOs and Community to involve the DDC/VDCs in critical activities, such as participation of DDC/VDC officials in (i) pre-development phase - participation of VDC officials at the mass meetings, detailed assessment of the scheme by SO and pre-feasibility mass meetings organized by SAs and pre-feasibility site  appraisals; (ii) development phase - DDC/VDC officials participate in the Mass Agreement on Community Action Plan Output (MACAPO) meeting, support legal registration of the WSUG, participate in WSUC training and conflict management training; VDC officials participate in at least one M&E exercise and (iii) implementation phase - a meeting with the VDC on source reliability; VDC/DDC assist in conflict resolution, VDC technician participate in selected technical trainings, VDC chairperson participate in the WSUC implementation phase training; and VDC officials participate in at least one M&E activity. Such involvement is expected to encourage the DDCNVDC to contribute to the water supply and sanitation schemes and help them to understand the Fund Board approach so that if they wish it would help them to replicate the approach in their own programs. It is also envisaged that the DDC/VDC will be responsible to provide post implementation support to the WSUGs for major rehabilitation or repair works which are beyond the capacity of the community. Rural Water Supply and Sanitation Fund Development Board: The Fund Board's objective is to promote sustainable, reliable and cost-effective demand-led rural water supply and sanitation services with emphasis on community based approaches. The composition of the Board of Directors of the Fund Board is as per the draft Act. The operating procedures of the Fund Board are presented in the Board implementation manuals which form a part of the Rules. The Fund Board will be responsible for overall oversight of the project. It will be responsible for policy, monitoring and implementation. All necessary powers to approve the budgets, programs, plans and selection of SOs and schemes, based on objective transparent eligibility criteria, will be conferred on the Board to allow it to work in a flexible and accountable manner. The Board will be responsible for project implementation. It will sub- contract with SOs and communities that meet eligibility criteria to assist beneficiary communities to plan and implement water supply and sanitation schemes that meet established eligibility criteria. The Fund Board will contract service agencies (SAs) for activities such as project promotion, training, appraisal, monitoring and evaluation, research and development, and auditing of the Fund Board accounts. It would be responsible for administering all project funded studies. The Fund Board policies will be implemented by its Secretariat, headed by an Executive Director and 46 staff. The Fund Board has demonstrated its capacity to implement rural water supply and sanitation schemes under the first project. To further scale up its activities without substantially increasing the Fund Board staff, the concept of umbrella SOs will be introduced under this project where the Fund Board's activities would be sub-let to regional umbrella SOs to manage a number of individual SOs and schemes. Ministry of Physical Planning and Works: The Ministry of Physical Planning and Works will be the line Ministry for the autonomous Rural Water Supply and Sanitation Fund Development Board. MPPW is also responsible for sector monitoring and evaluation and will provide inputs to the NPC for sector policy and strategy. MPPW will ensure uniformity in rural water supply and sanitation sector policy and proper coordination in the sector so that duplication of efforts is avoided. It will take the lead to coordinate donors in the sector. On lending arrangements: The credit amount received by HMGN will be passed on to the Fund Board as a grant to support the rural water supply and sanitation program. Procurement: All procurement of services, goods, and civil works would be carried out, as in the first project, in accordance with the World Bank procurement guidelines. Co-financing Arrangements: Under the first project the UK, Department of International Development (DFID) has provided St. Pound 2.72 million to support the Fund Board activities including some Batch IV implementation phase schemes; development phase of Batch V schemes and 100 implementation phase schemes. DFID provides the funds to the Fund Board through a special account. Procurement is done as per World Bank procurement procedures that the Fund Board has been adopting. The reports of IDA supervision missions, joined by DFID staff,  are adequate for DFID reporting requirements. As these activities carry over to this project, DFID co-financing is reflected in this project. In expectation of other donor funding for the Fund Board approach, HMGN has made provisions in the new Act for the Fund Board explicitly allowing the Fund Board to receive funding from multiple donor agencies. 7. Sustainability Experience of RWSSP I suggests that the demand driven and participatory decision making processes in which the communities are in the driver's seat go a long way help ensure sustainability of schemes. However, capacity enhancement of the communities to plan, implement and manage their schemes plays a critical role. The feeling of real ownership by the communities of the scheme is extremely important for sustainability. The transparent selection of competent SOs and SAs is also critical to allow the water supply and sanitation user group and committee to take charge. To be able to do this, the autonomy of the Fund Board to operate in a transparent, fair and professional manner is utmost. This requires the Fund Board to have top notch professionals who are paid reasonable and competitive market salaries. The project is designed to address these issues through revisions in legislation, sector policy/strategy, having clear implementation manuals and so on. The project approach is such that the communities are required to pay upfront for O&M as well as capital costs both in cash and kind to ensure real demand, ownership and commitment. In this project a post implementation phase is introduced to enhance continued sustainability. The Fund Board has instituted strong monitoring and evaluation systems that focus on sustainability. The Government has also recognized the issue of sustainability and is committed to monitoring the rural water supply and sanitation sub-sector. 8. Lessons learned from past operations in the country/sector [Note: Lessons learned from completed and ongoing projects financed by the Bank and other development agencies.] Lessons learntfrom international experience indicate that consumers of rural water supply and sanitation services should be required to be engaged in selecting, financing, implementing and managing systems that meet their demand and willingness to pay. This is also true in Nepal. A recent OED evaluation (Rural Water Projects - Lessons from OED Evaluations, March 2000) of rural water supply schemes financed by the Bank drew four important lessons, which are already been incorporated into RWSSP I. (a) A longer- term presence than was generally provided for under most projects is required to leave behind an organization that can: (i) maintain the water point or piped system or both; (ii) administer the water scheme in a financially responsible manner; and (iii) handle routine operations and maintenance. This basically underscores the importance of leaving in place a local organization capable of technically and financially managing the infrastructure. (The 36 months scheme cycle under RWSSP I expects a certain level of community capacity building to handle routine operation and maintenance of the facilities in the scheme. Experience indicates that this is achieved to some extent.) (b) The lack of proper attention to institutional development means that Governments must rely on beneficiary communities to rehabilitate what they have provided. Though there are community contributions to the rural water schemes, there is reluctance to cover full capital costs. Only in China is there full cost recovery. If tariffs are raised to cover equipment replacement the tariff would be so high as to drive communities back to traditional sources. Hence there is a need to provide for established funds that communities can tap or a policy-based on design life spans. (Under RWSSP 1, the basic principle is to design schemes that are manageable by the communities, however, the question of funding for major system breakdown is often raised as something that the community cannot provide for.)  (c) Level of service provided will not necessarily satisfy the needs of all those in the village. It is important to design projects on the basis of local willingness to pay and the financial capabilities of the majority of the community -- not just the better-off. Realizing the full potential benefits of rural water supply investments will require cataloging local differences and matching services to meet them, as necessary - whether through communities or private operators. (Since the decision on the service level and the additional costs above the basic Government subsidy is the community's choice, RWSSP I experience shows that the community deals with this aspect. It has been noted that many communities have also dealt creatively with the fact that some of their poorer members are not able to meet the required per household contributions to the 0 & M funds. Many communities dealt with this issue by categorizing households into two or three different categories of economic capacity and requiring lower levels of payment from poorer community members). (d) To improve project outcomes, Bank-financed interventions have to be adapted to social characteristics of each village served. Based on the level of social capital development in any village the approach to service delivery would differ including setting cost recovery targets. (Yes - RWSSP I experience tends to agree with this.) Lessons learntfrom the ongoing RWSS Project: * Demand driven, community managed schemes are more sustainable than supply driven schemes. * As poorer members of the community have often been found to be unable to afford the required community contribution, HMG has now instituted a policy which requires payment of at least a portion of the local market wage to below poverty line families (identified by the village) who work to install the water system. RWSSP II will follow that policy as well. Similarly, the RWSSP I project monitoring data show that schemes tend to be clustered near road heads, partly because the NGOs prefer to work in these areas, but also because for more distant schemes the material transport costs drive up the overall price of the system making it difficult for communities to provide their share of the total project costs. (H1MG is adopting a policy to subsidize the transportation costs to more remote communities to address this issue and the RWSS will follow this policy as well). * Participatory approaches to RWSS service delivery including community development activities, NFE, HSE and WTSS have been effective in empowering the communities, including women, where communities demonstrate a willingness to make social changes like enabling women to take decision making roles besides men in managing water schemes; and thus resulting in ownership. * WTSS has been an useful component in RWSSP I communities for women income generating activities. However, as it had departed somewhat from the intention of the project design -- which was to link women to other sources of business development services and micro-finance services to support them to use the time saved in fetching water to earn additional income, the sustainability and the inclusion of the poorer section of the community in WTSS programs are doubtful. Particularly, as the allocated funds for this were being given to Women's Tapstand group as a revolving fund for lending. This approach is not best practice globally or in Nepal and has not generally been found to lead to sustainable financial service delivery. This finding has lead to a major effort to redesign the WTSS component. * Application of objective and transparent eligibility criteria in selection of schemes, SOs and SAs help to do away with adhoc decisions, influenced politically or otherwise; * Resources for both capital investments (even up to (5.5%) in cash up-front,) and upfront O&M can be raised from the communities in rural Nepal if communities are in control of such resources; * Dramatic improvements are achievable in personal, domestic and neighborhood hygiene and sanitation practices including the regular use of toilets; washing of hands after defecation; bathing children at least once a week; keeping food covered and more than 95% of the houses have no human excreta disposed randomly in the neighborhood;  * SO capacity is enhanced and a growing number of SOs are able to assist communities to plan and implement their schemes; * A small number of qualified staff (Board has a total of some 43 staff of which 26 are professional) can administer a large number of schemes using efficient management information systems, local consultants, clear criteria for scheme selection and payment by results; * A "learning by doing" approach is needed for sound future programs through monitoring and evaluation of all aspects of the Board, the SOs, and scheme performance; * A long time is required to internalize the demand driven approach to participatory decision making using objective eligibility criteria, particularly when it is a departure from conventional approaches. 9. Environment Aspects (including any public consultation) Generally, the net environmental impacts of rural water supply and sanitation schemes are positive. Some of the main environmental health improvements expected under the project include: * Time and energy savings for women and children by bringing water closer to the home; * Increased water supply for bathing, washing and cleaning; * Improvements in hygiene and sanitation; * Reduced bacterial contamination due to controlled disposal of human waste; and * Reduced faecal-oral contamination of drinking water due to improved hand washing practices. However, a number of adverse impacts could occur, if the schemes are not properly planned, sited, designed, constructed, operated and maintained. Potential negative impacts, both individual or cumulative, include: * Hydraulic interference between existing and new well sources. Source tapping may deny water to previous users of the source not connected to the scheme, particularly downstream users; * Induced erosion caused by pipe laying, general construction activities, deforestation, improper drainage, and overflow of reservoirs or other components; * Increased water use without adequate wastewater disposal may cause pollution problems and mosquito breeding; as would ponded water around water points; * Shallow aquifers may be contaminated due to poor quality well head construction and the siting of latrines close to well points; Careful planning and design during project implementation are required to address these issues This is reflected in the institutional and management arrangements defined in the EA. In addition, there are environmental issues at the policy level that may lead to long-term impacts; they have been identified in the Environmental Assessment and addressed in the Environmental Management Plan. They include (see also details in para. E.3. above on technical issues): * Water quality monitoring and institutional measures to ensure the provision of safe water, particularly for arsenic testing; * Potential for conflict with existing and/or downstream users; * Risk of groundwater overdraft and need for regulatory measures to prevent water mining, particularly in sensitive areas such as the Terai; * Provisions for appropriate drainage; * Catchment protection, watershed management, and promotion of integrated management of local water resources.  A critical review of environmental issues in the first project has been undertaken to inform the design of the Second RWSS Project (see details in the EA and in the summary in Annex 13 below). The review included analysis of baseline information and indicators included in the project's monitoring system, observations during site visits, and public consultations in the project areas. The effectiveness of the ongoing project in addressing environmental issues was examined, notably with respect to environmental criteria for screening of subprojects, guidelines for mitigation of potential subproject environmental impacts, adequacy of institutional arrangements and capacity building needs, and monitoring and evaluation of environmental quality parameters. Recommendations for the follow-on project were made, accordingly, notably revision of the environmental appraisal formats, and M&E arrangements. The key stakeholders are relevant Government agencies, NGOs, communities and donors. 10. List of factual technical documents: 11. Contact Point: Task Manager Tashi Tenzing The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: Fax: 12. For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Web: http:H/ www.worldbank.org/infoshop Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. * Mr. Tenzing's contact address is -- The World Bank, Nepal Country Office, Lal Durbar, Yak & Yeti Hotel Complex, Kathmandu, Nepal. Telephone: (977-1) 4226792/4439571; Extension: 129. Fax: (977-1) 4225112.