pproaches46318 O c t o b e r 2 0 0 8 N o t e N u m b e r 2 1 Output-Based Aid in India: Community Water Project in Andhra Pradesh Cledan Mandri-Perrott P roviding safe drinking water to poor families in the coast- al area of Andhra Pradesh is critical for the economic de- velopment of the region as well as to improve health and living conditions. A community water project supported by the Global Partnership on Output-Based Aid (GPOBA) is increas- ing innovation and efficiency in the sector through a community- based public-private partnership model using cost-effective water purification technology. Enhancing the sustainability of pilot water projects in villages in Andhra Pradesh has been a key part of the project design. The scheme provides a performance- based subsidy linked to the delivery of pre-agreed outputs which include three months of billed water services. The output-based approach requires that tariffs paid by users for consumption cover the costs of operation and maintenance, user-fee collection, and education and communication activities with key stakehold- ers and vulnerable groups such as young mothers, infants, and families living below the poverty line. Tariffs also cover loan repayment, thus helping to ensure the long-term sustainability of the services. The project has potential for replication in other vil- lages in Andhra Pradesh and ultimately in other parts of India. Background Safe drinking water is a key development issue in India, © Naandi Foundation. where only 18 percent of rural households have ac- cess to clean water and 21 percent of communicable diseases are water-related. Andhra Pradesh, the coun- to water services in these areas include geographical try's fifth most populous state, is considered a leading remoteness, the lack of a sustainable tariff structure, reform state, with a clear long-term strategy toward poor operation and maintenance of existing systems, infrastructure development laid down in its Vision 2020 lack of technical knowledge among rural communities, document. The state has significantly improved water and scarcity of public funds. Social factors also con- supply coverage in the past two decades, such that the tribute to poor service levels in rural areas, notably the proportion of its population with access to water has caste system and high rates of illiteracy. There is a need, increased from 3 percent to 65 percent. therefore, both to increase investment in rural water schemes in Andhra Pradesh and to build awareness Despite this progress, estimates suggest that up to among rural communities of the benefits of clean water. 17 million of Andhra Pradesh's 80 million inhabitants experience bacteriological contamination of water. Those most affected are rural households in the coastal Cledan Mandri-Perrott is a Senior Infrastructure Specialist districts, areas that also have high infant mortality rates with the World Bank's Finance, Economics, and Urban and low service coverage. Barriers to improving access Department. Supporting the delivery of basic services in developing countries pproaches Table 1. Schedule of Outputs and Disbursements Indicator # Output Item Description of the Output Means of Verification % Disbursed 1. 25 UV water Construction and installation Completion report for each plant 20 purification plants/ of the complete CSWS available from the Independent CSWSs installed Verification Agent 2. Registration of the Paid subscription fees Minimum 500 Below Poverty Line 60 households households registered for paid usage of water; subscription fee available from such households 3. Three months of m3 of water sold Continued usage of paid water by a 20 billed user fee minimum of 500 households; consumption billing records Participatory community model the community contribution and develop a commu- nication and awareness campaign, working with key In 2006, Naandi Foundation, an Indian non-govern- stakeholders such as schools, community self-help mental organization, and Water Health International groups, and health workers to change the behavior- (WHI), a disinfection technology provider, approached al practices of poor families regarding water. Mea- GPOBA to request funding for pilot rural village water surement of outputs will be necessary and Naandi schemes in coastal Andhra Pradesh combining wa- will thus conduct baseline, mid- and end-line ter purification technology with a community-driven evaluations to measure the impact of the scheme. and performance-based approach. The proposal was Furthermore, it will train Safe Water Promoters and accepted by GPOBA and, in May 2007, Naandi and Village Health Workers. GPOBA signed a grant agreement for an output-based 3. WHI is the project operator. It will build and install aid (OBA) project to improve rural water services in the ultraviolet (UV) filter water purification plants three coastal districts of Andhra Pradesh: Guntur, and the basic infrastructure needed to operate Krishna, and West Godavari. them (i.e., pumping system, storage tank, and The project aims to create Community Safe Water shelter) in the 25 villages1; hire and train a plant op- Schemes (CSWS) in 25 villages that currently lack ac- erator for each village; and share project implemen- cess to clean drinking water, benefiting around 12,500 tation risks by providing Naandi with operational poor households. It is estimated that each CSWS would performance guarantees. benefit a minimum of 500 poor households. Each CSWS will have a water treatment plant connected to a Output-based aid approach water distribution point from which users will purchase water in jerry cans. Although this project does not en- GPOBA is subsidizing the cost of setting up the water visage domestic connections, it is a first step in provid- treatment plants in 25 villages through a US$800,000 ing safe and affordable drinking water in areas where grant. The subsidy is paid to Naandi in installments typically the existing water source is of poor quality. after independent verification of three pre-agreed out- puts (see Table 1) which Naandi pre-finances through The OBA schemes involve the village council or commercial borrowing2. Notably, a significant part of "Panchayat," Naandi, and WHI in a public-private part- the subsidy is payable only after each CSWS proves it nership. Their roles in this project are as follows (see has provided reliable water services for at least three also Figure 1): 1. The Panchayat provides a regular source of water, 1WHI has provided community-based organizations secure land, the community financial contribution, with the same operating model in the Philippines and is and electricity at a pre-agreed tariff for the CSWS. planning to replicate this model in several countries in 2. Naandi acts as project manager and provides pre- West Africa (Ghana and Nigeria). For information about financing for each project as well as collecting user WHI, see www.waterhealth.com. 2Naandi is expected to use the GPOBA grant agreement and fees. It will mobilize the community towards raising the operational guarantees provided by WHI as collateral. Supporting the delivery of basic services in developing countries pproaches months after becoming operational. Together with target individual beneficiaries in the villages, the project an independent verification agent, the World Bank's uses the government's `white ration card,' a system Water and Sanitation Program (WSP)3 will conduct that entitles low-income individuals to obtain basic ex post reviews of the completeness, accuracy, and commodities (e.g. rice, flour) at a reduced price. Other authenticity of the documentation provided for each indicators considered include family size, construction village, and undertake ex post physical spot checks of of a house from low-cost material, limited or no pos- the outputs. Payments by GPOBA are to be made only session of durable goods such as a TV, and time spent after these conditions have been met. by women and children of a given household in fetch- As Table 1 shows, with output-based aid, payment ing water. As project manager, Naandi does the target- of the subsidy is mainly linked to service delivery. This ing in close collaboration with the village Panchayat. contrasts with input-based schemes in which payment The process is verified by the independent verification of the subsidy is based on meeting construction mile- agent. stones. In this scheme, if WHI does not perform, Naandi will not be paid the subsidy by GPOBA and thus will not Sharing the investment costs be able to pay the loans it has taken out to pre-finance the projects. To protect itself against this risk, Naandi The total project cost is US$1.25 million. The cost per can call on the operational guarantee provided by WHI. CSWS (US$50,000) covers investment, community awareness, and running costs. Tariffs are set at an Selecting eligible households affordable rate and cover the initial investment (net of subsidy) and operation and maintenance costs. The project uses various techniques to target the GPO- Sustainability of the service is thus ensured through BA subsidy to the poorest households. The three proj- user fees which average US$0.03 for a consumption of ect districts were chosen because of their high poverty 20 liters. Since the three project districts are contigu- rate and lack of access to quality water services. Within this geographical area, villages were selected based on the presence of a water source that can be purified by 3 http://www.wsp.org ultraviolet technology4, and the willingness and ability 4 After treatment by the CSWS, water quality must satisfy the of the village to adopt a fee-for-service scheme. To Bureau of Indian Standards. Figure 1. Project Arrangements Payment per village against GPOBA outputs verified by Independent Verification Agent Grant Agreement MOU detailing roles and responsibilities Naandi Foundation including Operational Guarantee Water Health Int'l (Project Manager) (Operator) Tripartite Performance Agreement Operational responsibility Provides Village Verifies and pre-financing Panchayat issues opinion on to be repaid outputs reached through Provides community GPOBA contribution subsidy Community Safe Independent Water Scheme Verification Agent Key: Fund flow: Contractual relationship: Information flow: Supporting the delivery of basic services in developing countries pproaches ous, the cost per CSWS is almost the same across all and 10 are in the process of making their community the project villages5. Table 2 shows the contribution by financial contributions. The GPOBA subsidy has made each partner. it easier for Naandi to borrow funds from commercial The community contribution may come from user banks. The OBA approach is also promoting partici- fees, and/or from local government funds, and/or from patory community involvement and building capacity donations from philanthropists and charitable orga- in the villages for managing and delivering efficient nizations. The commercial loan sourced by Naandi is services. The grassroots fee-for-service model coupled payable over a period of approximately seven years. with a sense of community engagement and owner- During this period the assets remain with the com- ship will help ensure the long-term sustainability of the munity and Naandi, and WHI has full operational water supply schemes. responsibility. After the loan is re-paid, the Panchayat It is anticipated that the lessons learned and may choose to renew the operation and maintenance methodology developed for each CSWS can readily be agreement with Naandi and WHI. The life of the plant applied to other villages in the State of Andhra Pradesh system is expected to be at least 15 years. and ultimately in other parts of India6. GPOBA, Naandi, and WHI believe that scaling up is possible, Results and conclusions as the demonstration effects of each pilot will moti- vate adjoining villages to engage in similar projects, As of September 2008, four CSWSs have been con- accelerating demand and willingness to pay for clean structed and verified, three in Krishna and one in West water through user fees. Lessons from this project may also assist in the design of national programs aimed at Godavari. The remaining 21 villages have been selected achieving the Millennium Development Goals for water and sanitation. Table 2. Share of Overall Investment Per village Total Project Share of Source of funds (US$) (US$) total (%) Special thanks to Amit Jain, Director, and Jitesh Odedra, Project Manager, of the Naandi Founda- Community 10,000 250,000 20 tion for their support and determination in taking contribution this project forward. GPOBA subsidy 32,000 800,000 64 Long-term 8,000 200,000 16 commercial loans 5A variation of ±1 to 2% of the CSWS unit cost has been sourced by Naandi observed due to certain local influences on input costs. 6Naandi has already identified 100 villages in Krishna district Total 50,000 1,250,000 100 for expanding the program. About OBApproaches OBApproaches is a forum for discussing and dis- The case studies have been chosen and presented seminating recent experiences and innovations by the authors in agreement with the GPOBA for supporting the delivery of basic services to the management team, and are not to be attributed to poor. The series will focus on the provision of water, GPOBA's donors, the World Bank or any other af- energy, telecommunications, transport, health and filiated organizations. Nor do any of the conclusions education in developing countries, in particular represent official policy of the GPOBA, World Bank, through output, or performance,-based approaches. or the countries they represent. To find out more, visit www.gpoba.org The Global Partnership on Output-Based Aid Supporting the delivery of basic services in developing countries