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Water Supply and Sanitation Projects in Selected Developing Member Countries

Water Supply and Sanitation Projects in Selected Developing Member Countries

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Completed in 2002, this evaluation study analyzes the effect of ADB lending and technical assistance for water supply and sanitation projects. The study assesses how improved water availability has affected various user groups, particularly the poor, and discusses the results and effect of selected projects in the context of physical, poverty, health and environmental, social and gender, financial and economic, and institutional and policy dimensions.
Completed in 2002, this evaluation study analyzes the effect of ADB lending and technical assistance for water supply and sanitation projects. The study assesses how improved water availability has affected various user groups, particularly the poor, and discusses the results and effect of selected projects in the context of physical, poverty, health and environmental, social and gender, financial and economic, and institutional and policy dimensions.

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03/02/2013

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55. In recent years, ADB has increasingly emphasized the importance of cost recovery in
water supply projects and the financial viability of WSCs. Only full cost recovery will ensure
WSCs’ ability to supply customers over the long term, and the most reliable way to achieve this
is for water users to compensate WSCs directly. Most loan agreements include financial
covenants intended to encourage progress toward full cost recovery and WSCs’ financial
independence, but the projects frequently do not include components to help achieve these
objectives. The WSCs’ ability to increase tariffs and achieve full cost recovery depends on local
circumstances.21

Willingness to charge comes from a wish to stop burdening local government
finances with excessive subsidies and to address the constraints of the local water resource
situation. The Dalian and Zhangjiakou WSCs have relatively high levels of debt, but both have
been increasing water tariffs substantially and moving toward full cost recovery.22

56. Cost recovery for water supply projects tends to focus on increasing WSCs’ revenues to
cover specific costs (O&M, depreciation, and so on) or to meet financial ratio targets such as the
debt-service ratio. This approach ignores two points, first, whether the costs that are being
covered are adequate to sustain the water supply system;23

and second, whether operating
costs are too high, perhaps because excess staff are on the payroll or levels of NRW are high.24
Therefore when considering cost recovery, project designs should take into account both the
revenues and costs, as well as technical issues relating to the adequacy of O&M procedures
and practices.

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