Lessons

Armenia: Water and Sanitation Project

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Lessons

Early establishment of a project management unit (PMU), most plausibly through advance action, facilitates timely project completion.

While processing the project, the Asian Development Bank (ADB) worked closely with government counterparts to establish the PMU through advance procurement and retroactive financing. Early establishment of the PMU facilitated timely project completion and the closing of the first loan 4 months ahead of schedule.  Similar experience in many more projects supports the value addition of advance action to timely project completion.

Project Cycle Stage: 
Implementation

The sector loan modality provides ADB and partner governments with a comprehensive instrument for responding to sector development priorities.

During project preparation, a policy and legal framework was in place to guide the development of the water and sanitation sector in Armenia.  The use of the sector loan modality was appropriate in this context as it provided ADB and government counterparts with a comprehensive instrument for responding to the sector priorities identified in the framework.  Building on this project’s experience, future similar projects should ensure that subproject selection criteria are well-defined and provide a clear basis for identifying priority investments that may differ in scope but are all focused on achieving the sector priorities reflected in the project’s results framework.  Without such element, implementation of this project, which took 10 years and a total of 35 subprojects, would not have been as effective as it was in improving water service delivery and sector performance in the project area.

Project Cycle Stage: 
Preparation

Public-private partnerships (PPPs) can improve the performance of public utilities.

The government explored two PPP approaches to enhance the performance of its two major water and sanitation utilities—a management contract for the Armenia Water and Sewerage Company (AWSC), the regional utility servicing 37 towns and 300 villages, including the project sites; and a lease contract for the Yerevan Water and Sewerage Company, servicing the capital city.  Following the merger of these two and other regional utilities in 2017, it decided to lease out the management and operation of the national utility to a transnational water and energy services company.  Government decision was premised on the benefits identified from economies of scale, lower management cost, opportunities for significant reduction in energy use, and the expectation of reductions in losses from nonrevenue water. While the government did not choose a management contract, this project’s preparatory processes found the said PPP approach to have significantly improved the efficiency of the AWSC—increasing revenue collection by 24% and the number of metered connections by 76%; and decreasing energy costs by 15%, water losses by 20%, and number of employees by 40%, during its first 2.5 years of operation.  The approaches highlighted by this project may be considered in future similar interventions.  

Project Cycle Stage: 
Preparation

Lack of tariff adjustments can be detrimental to service utilities.

Whether public or private, service utilities need to adjust tariffs to meet normally increasing production costs.  These adjustments would be most pressing, and if not met, can be detrimental for utilities that need to expand to smaller towns and villages without adequate infrastructure.  AWSC offers a striking example: although it significantly increased revenues through higher sales volume and billing and collection rates, because the government did not approve any tariff increase during the 10-year project lifespan, the AWSC did not achieve cost recovery and became increasingly unsustainable.  On the other hand, the project observed strong reluctance among poor communities to be connected to clean piped water systems because of tariff implications.  Perhaps accounting for why government did not favor tariff increases under the AWSC, community behavior that could deter the provision of safe water for all need to be addressed in future projects.

Project Cycle Stage: 
Preparation
Implementation

Collection of gender-disaggregated data and participation of a gender specialist in review missions are essential to improving the gender performance of ADB-assisted projects.

Tracking and enhancing the implementation of this project’s gender action plan (GAP) was a huge challenge because of the absence of gender-disaggregated data. This issue should be prioritized by ADB in discussions with government counterparts and addressed right away during the preparation of water and sanitation projects in Armenia. Developing community ownership of the GAP in ADB-assisted projects in the country should be pursued more innovatively.  Participation of a gender specialist in ADB project review missions should also be ensured.

Project Cycle Stage: 
Preparation
Implementation
Background

Following the dissolution of the Soviet Union, Armenia’s water supply and sanitation systems declined because of economic collapse, inadequate investment, poor operation and maintenance (O&M), and lack of management skills. Consumers faced serious problems with the shortage and poor quality of drinking water and lack of wastewater disposal facilities, which posed threats to human health and the environment.

To address the situation, the government implemented water sector policy and legislative reforms and sought Asian Development Bank (ADB) assistance to prepare and finance a project that would (i) undertake priority infrastructure rehabilitation and improvement, (ii) improve operational and financial management, and (iii) implement tariff reforms.   In response, ADB approved a $36 million loan for the Water Supply and Sanitation Sector Project in September 2007.  The project’s expected impact was improved public health and environment for about 576,000 people living in 16 towns and about 125 villages. Its intended outcome was improved access to safe, reliable, and sustainable water supply and sanitation services, managed on commercial principles and with environmentally sound practices.  The project was to focus on optimizing the operation of existing infrastructure and maximizing the operational efficiency of service providers, followed by the construction of new infrastructure.

Building on the success of the original project, ADB approved a $40 million loan in additional financing in April 2012.  The additional financing was to expand the project benefits to an overall total of 700,000 people in 29 towns and up to 160 villages. It also aimed to further enhance the operational efficiency and financial management of the Armenia Water and Sewerage Company (AWSC), the state-owned regional utility servicing the project area.

Effective implementation resulted in the attainment of almost all output and outcome targets.  By 2017, all water supply and sanitation systems in the project area had been rehabilitated, replaced in full or in part, and/ or extended, benefitting 894,785 residents or more than the 700,000-target.  Water metering increased to 83% in 2015 from 65% in 2008.  Losses from nonrevenue water in the entire AWSC service area dropped to 67.3 % in 2016 from 83% in 2016.  

Human resource and institutional capacity development combined with infrastructure and equipment upgrades to raise billing and collection rates and improve AWSC corporate productivity. Average tariff collection efficiency rose to 91% in 2015 from 61% before the project. AWSC productivity, measured in terms of the number of employees per 1,000 consumers, improved from 5.64 in 2008 to 7.5 in 2015.

Along with improving access, the project also succeeded in providing its target beneficiaries with safe and more reliable water supply.  Armenia’s water quality standards were met and by 2016, water was available 24/7 in 52% of the project area, and for an average of more than 16 hours per day in all the project towns and villages.  Despite mounting financial pressure due to inadequacy of tariffs to meet the increasing expansion and O&M costs, AWSC service delivery continued to fare well. Customer satisfaction went up to 91% in 2016 from 42% in 2008. 

The State Committee for Water Economy was the executing agency, and the AWSC, the implementing agency.

Project Information
Project Name: 
Water Supply and Sanitation Sector Project
Report Date: 
September, 2018
Main Sector: 
Water and Other Urban Infrastructure and Services
Country: 
Armenia
Project Number: 
40296-013
Project/Modality: 
Sector Loan
Themes: 
Environmentally Sustainable growth
Gender Equity and Mainstreaming
Governance and Capacity Development
Sub Sector: 
Urban sewerage
Urban water supply
Loan Number: 
2363
Source of Funding: 
Special funds

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