Document of The World Bank

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This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not be otherwise disclosed without World Bank authorization.

FOR OFFICIAL USE ONLY

Report No: 26247-IN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 128.8 MILLION (US$181.0 MILLION EQUIVALENT)

TO INDIA

FOR THE

MAHARASHTRA RURAL WATER SUPPLY AND SANITATION “JALSWARAJYA” PROJECT

JULY 17,2003

Rural Development Sector Unit South Asia Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective July, 2003)

Currency Unit = Indian Rupees (Rs.) Rs. 1.00 = US$0.022

US$l.OO = 46.15

AG APL ARWSP BLSC BPL CAS COM CAG CBO CDD CEO DAMT DANIDA DCA DFID DFMT DFT DO DWMSC

EA EMP FMR F M S ERR F M M GIS GO1 GOM GP GS GSDA GWMA ID A IE C K fW LFA

FISCAL YEAR April 1 -- March 31

ABBREVIATIONS Auditor General Above Poverty Line Accelerated Rural Water Supply Program Beneficiary Level Sub-committee Below Poverty Line Country Assistance Strategy Community Operational Manual Comptroller and Auditor General o f India Community Based Organization Community Driven Development Chief Executive Officer District Appraisal and Monitoring Team Danish International Development Assistance Development Credit Agreement Department for International Development District Financial Management Team District Facilitation Team Development Objective District Water Management and Sanitation Committee

Environmental Assessment Environmental Management Plan Financial Management Report Financial Management System Economic Rate Return Financial Management Manual Geographic Information System Government o f India Government o f Maharashtra Gram Panchayat Gram Sabha Ground Water Development Agency Ground Water Management Association International Development Association Information Education and Communication Kreditanstalt fur Wiederaufbau Local Fund Audit

AND ACRONYMS ipcd M D G MIS MJP ML&E M O U M R D MTFRP MVWSSC

NGO NPV

Litres per capita per day Millennium Development Goals Management Information System M aharashtra Jeevan Pradhikaran Monitoring, Learning and Evaluation Memorandum o f Understanding Ministry o f Rural Development Medium Term Fiscal Reform Program Multi-Village Water Supply and Sanitation Committee Non Governmental Organization Net Present Value

OED Operations Evaluation Department OMT O&M PIP PRA

Operations and Monitoring Team Operation and Maintenance Project Implementation Plan Participatory Rural Appraisal

PS Panchayat Samiti PWSC RGNDWM RST Reform Support Team RWSS SA Social Assessment SAC Social Audit Committee SHG S e l f Help Group SLBC Scheme Level Beneficiary Committee so Support Organization SRP Sector Reform Program TDP Tribal Development Plan TSC Total Sanitation Campaign VAP Village Action Plan VP VWSC WDC Women’s Development Committee WSSD ZP Zil la Parishad

Pada Level Water and Sanitation Committee Rajiv Gandhi National Drinking Water Mission

Rural Water Supply and Sanitation

Village Panchayat (same as Gram Panchayat) Village Water and Sanitation Committee

Water Supply and Sanitation Department

Vice President: Praful C. Pate1 Country ManagedDirector: Michael F. Carter

Gajan Pathamanathan/Constance A. Bernard Meena M. Munshi

Sector ManagedDirector: Task Team Leader/Task Manager:

FOR OFFICIAL USE ONLY INDIA

MAHARASHTRA RURAL WATER SUPPLY AND SANITATION "JALSWARAJYA" PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 2. K e y performance indicators

2 2

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2. M a i n sector issues and Government strategy 3. Sector issues to be addressed by the project and strategic choices

3 4 7

C. Project Description Summary

1. Project components 2. Key pol icy and institutional reforms supported by the project 3. Benefits and target population 4. Institutional and implementation arrangements

D. Project Rationale

1. Project altematives considered and reasons for rejection 2. Ma jor related projects financed by the Bank andor other development agencies 3. Lessons leamed and reflected in the project design 4. Indications o f borrower commitment and ownership 5. Value added o f Bank support in this project

E. Summary Project Analysis

1. Economic 2. Financial 3. Technical 4. Institutional 5. Environmental 6. Social 7. Safeguard Policies

8 8 9

10

14 15 15 16 16

17 17 17 18 21 22 24

F. Sustainability and Risks

1. Sustainability 25

This document has a restr icted d is t r ibut ion and may b e used by recipients only in the performance o f the i r of f ic ia l duties. I t s contents may n o t be otherwise disclosed [wi thout World Bank authorization.

2. Crit ical r isks 3. Possible controversial aspects

G. M a i n Loan Conditions

1. Effectiveness Condition 2. Other

H. Readiness for Implementation

I. Compliance with Bank Policies

Annexes

Annex 1 : Project Design Summary Annex 2: Detailed Project Description Annex 3: Estimated Project Costs Annex 4: Cost Benefit Analysis Summary, o r Cost-Effectiveness Analysis Summary Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary Annex 6: (A) Procurement Arrangements

(B) Financial Management and Disbursement Arrangements Annex 7: Project Processing Schedule Annex 8: Documents in the Project F i le Annex 9: Statement of Loans and Credits Annex 10: Country at a Glance

26 28

28 28

30

31

32 37 59 60 67 68 75 87 88 89 93

M A P ( S) IBRD No. 32546

INDIA Maharashtra Rural Water Supply and Sanitation "Jalswaraj ya" Project

Project Appraisal Document South Asia Regional Office

SASRD

IDA LOCAL COMMUNITIES

COUNTRY LOCAL GOVTS. (PROV., DISTRICT, CITY) OF BORROWING

T e a m Leader: Meena M. Munshi Sector(s): Water supply (50%), Sanitation (50%) Theme(s): Rural services and infrastructure (P), Country Director: Michael F. Carter

Amount (US$m): $181.0 mill ion (SDR 128.8 million)

Proposed Terms (IDA): Standard Credit I

172.15 14.00 0.00

Grace period (years): 10 Commitment fee: 0.00-0.50%

8.85 0.00 0.00

Years to maturity: 35 Service charge: 0.75%

181.00 14.00 0.00

Responsible agency: GOVERNMENT OF MAHARASHTRA (GOM) Department o f Water Supply and Sanitation Contact Person: Mr. Sudhir Thakre

Fax: 91-22-2284-

Project implementation period: 5.5 years; FY2004-2009 Expected effectiveness date: 1213 112003 Expected closing date: 0913012009

A. Project Development Objective

1. Project development objective: (see Annex 1)

The development objectives o f the proposed project are to: (i) increase rural households’ access to improved and sustainable drinking water supply and sanitation services; and (ii) institutionalize decentralization o f Rural Water Supply and Sanitation (RWSS) service delivery to rural local governments and communities.

The State o f Maharashtra faces a severe problem with regard to ensuring supply o f safe and adequate drinking water to i t s rural population, 57 mil l ion, living in 11 m i l l i on households in 86,681 villages and habitations. The state’s ground water sources are constrained due to natural factors such as geology and spatially variable rainfal l with extremes of high monsoon precipitation in some areas and drought situation in others. These factors have a dramatic impact on sustainability o f sources for water supply, especially during February-May. The situation i s exacerbated by unregulated groundwater abstraction for purposes o f irr igation and industrial uses. The holistic management o f ground and surface water resources i s typical ly absent.

According to a recent assessment, out o f 86,68 1 villages and habitations, only about 62,000 o f them have established facilities capable o f providing adequate and safe water. Out o f the remaining 24,681 villages and habitations, as many as 7000 have either n o water supply and access to safe water or a very limited supply o f 10 lpcd and below. The remaining 17,681 villages and habitations have facilities that are designed to supply water only to the extent o f 10-30 lpcd with much reduced quantities available during summer. Moreover, many o f the existing water supply facilities are reportedly not functioning up to their designed potential or have stalled due to lack o f necessary repairs and replacements, exacerbated by lack o f access to power due to non payment o f dues to the state electricity board.

Maharashtra’s resource requirements for the rural water supply and sanitation sector, based on 40-lpcd norm, could range f rom $3.7 to $4 b i l l i on over the next 10 years. According t.o recent Government o f Maharashtra (GOM) estimate, the resource requirements o f the 10th Five Year Plan (2002-07) and the last two years o f the project (2008-09) wou ld be about $2.5 bi l l ion. Using on-going funding programs as the base, during this period, GOM expects to mobil ize about $1.0 b i l l i on (excluding community contribution). These resources wou ld be derived f rom the Minimum Needs Program ($185 million); market borrowings ($305 mil l ion) and special Government o f India (GO1)-GOM supported programs (including ARWSP, SRP, TSC, Scarcity, and Swajaldhara) ($467 million); and external assistance f rom KfW ($3 1 million). Given the resource constraints, both at the national and state levels, GOM’s on-going 10th Five Year Plan (2002-7) estimates an outlay o f only about $850 mil l ion. Whi le o n a broader fiscal front, GOM has launched a medium term fiscal re fo rm program with a focus o n improving tax collection, containing growth in government spending, and enhancing efficiency o f government expenditures, i t s abi l i ty to raise additional resources f rom the general budget to f i l l the existing gap remains significantly constrained. The proposed project which part ial ly f i l l s the resource gap, wou ld l ikely be the first o f a series o f dovetailed RWSS projects, wh ich could be potentially supported by the Bank Group and other donors if GOM could demonstrate that i t has ut i l ized IDA assistance available under the f i r s t project effectively, in a timely manner, and consistent with the reform program introduced.

2. Key performance indicators: (see Annex 1)

K e y performance indicators to measure incremental achievements wou ld be: Dol: (a) increase in the number (or %) o f households having access to safe sources o f water and improved sanitation services; (b) increase in the number (or %) o f tr ibal households having access to safe sources o f water and improved

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sanitation services; (c) % decrease in incidences o f water-relatedwater-borne diseases; (d) improved perception o f households on quality of, and access to safe water and clean sanitation services. D 0 2 : (a) number o f Vi l lage Panchayats (VPs) planning, implementing and managing sustainable RWSS services; (b) increase in proportion o f state and district investment funds for water supply and sanitation transferred to VPs.

B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported b y the project: (see Annex 1) Document number: 22541

Overall C A S Goal and Strategy: The proposed project i s consistent with CAS objectives o f strengthening the enabling environment for development and growth and supporting interventions o f special benefit to the poor and disadvantaged. I t will implement the CAS strategic principles o f partnership and a programmatic approach. The project provides an opportunity to strengthen the Bank Group's partnership with India, Maharashtra, donors and NGOs in improving RWSS services.

Date of latest CAS discussion: 12/17/2002

The proposed project wou ld specifically implement CAS program priorities of: (i) supporting effective and inclusive decentralization by empowering local communities in rural areas and creating appropriate institutional arrangements for ensuring delivery o f services by local governments in an efficient and accountable manner; (ii) building and implementing consensus on key po l icy and institutional reforms; (iii) funding investments in rural infrastructure l inked to reforms in service delivery; (iv) using NGOs and alternative service providers; (v) promoting cost sharing; (vi) targeting the poorest areas and most vulnerable groups; and (vii) integrating interventions for maximum impact.

The project supports the Mi l lenn ium Development Goals (MDG) of: (i) promoting gender equality and empowering women (Goal 3, Target 4); (ii) sustainable access to safe drinking water (Goal 7, Target 10); (iii) improved access to sanitation (Goal 7, Target 11); and (iv) increased proportion o f Off ic ia l Development Assistance for basic social services (Goal 8, Target 12).

Sector-specific C A S Strategy: IDA'S current approach to supporting rural water supply and sanitation i s based on the jo in t GOI- Bank Group Sector Review (1998), the Bank's Generic Project Concept Document (June 1999) and the Bank's updated RWSS strategy (2003) endorsed by GOI. The approach i s aimed at demonstrating viabi l i ty o f the reforms in improving service delivery and sustainability by developing, testing and implementing the reform approach, in selected states, on a p i lo t basis.

T w o recent IDA-supported RWSS projects - Kerala and Karnataka 11 - are fo l lowing the above reform approach. The Uttar Pradesh (UP) RWSS Project started in 1996 also adopted a demand-responsive approach empowering user organizations, but did not involve rural local governments. Drawing upon the success o f these projects, f rom April 2000, GO1 launched i t s o w n nationwide Sector Reform Pi lot (SRP) Project - covering 26 o f 28 states, committing US$5.50 m i l l i on and benefiting 70 m i l l i on people.

The project i s also consistent with the recent Bank Group Sector Assistance Strategy Note (November 2002), endorsed by GOI, that outlines the overall framework and guiding principles for the Bank's RWSS work program in India for the next 2-3 years. I t reflects lessons learned f rom implementation experiences o f the current approach, and addresses major emerging challenges, notably the need for scaling up in a sustainable manner. The Bank wou ld support RWSS projects in states that demonstrate ownership, pol i t ical will, and commitment to implement reforms. Priori ty wi l l be given to states that: (i) decentralize RWSS service delivery responsibility to rural local governments for single village water supply schemes; and (ii) adopt a reform approach state-wide. The main challenge for the states now i s to expand and

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spread out the re fo rm approach. This i s required to meet GOI’s pol icy objectives o f accelerating RWSS coverage and ensuring sustainability, and to achieve MDGs. Establishing necessary institutional arrangements, building capacity, and bridging financial gaps to implement scaling up agenda are also the key priorities o f the proposed project.

2. M a i n sector issues and Government strategy:

At the national Level

Rural drinking water pol icy in India i s at an interesting crossroad. Although GO1 has launched a major reform program in the RWSS sector, most states s t i l l fo l low traditional, top-down financing and delivery o f RWSS services. Significant subsidies continue to be provided by GO1 and state governments to finance local agencies for delivering engineering intensive systems with l i t t le attention to community demand, choice o f technology; users willingness to pay, and longer term sustainability exacerbated by the lack o f due attention to water resource availability and quality o f RWSS services. This resul ts in government-dominated, supply driven programs that have proven to be unsustainable institutionally, financially and environmentally. N o t surprisingly, the level o f failure o f this approach i s widespread and we l l documented. Against this background, states l ike Kerala, Kamataka, Uttar Pradesh have implemented the reform program in varying degrees. The state o f Maharashtra, which has taken up this challenge state-wide since July 2000, can potentially show the way forward.

At the State level

Over the past several decades, Maharashtra has been making substantial investments in RWSS funded mainly by grants f rom both GO1 and GOM, marginally supplemented by donor-funded programs. However, a large proportion o f Maharashtra’s rural population i s s t i l l without access to sustainable and safe drinking water and sanitation. The state’s ground water sources are constrained due to natural factors such as geology which provides a l imi ted natural storage, undulating and steep topography that leads to h igh run-offs in high rainfal l areas; and drought situation in others. The situation i s exacerbated by unregulated groundwater abstraction for purposes o f irr igation and industrial uses and the lack o f holistic management o f the totality o f ground and surface water resources, with required priori ty given to drinking water. Additionally, water quality issues in terms o f chemical and bacteriological contamination need to be systematically addressed over the long-term in conjunction with the program for rural water supply. Overall, the RWSS sector in Maharashtra i s characterized by:

(a) Ineffective and unsustainable publ ic expenditures: Past government RWSS programs focused o n construction and neglected source and financial sustainability aspects. This led to unsustainable and poorly managed assets; (b) Lack o f ownership, poor maintenance o f facilities and n o cost recovery for 0 & M: Evidence from India and elsewhere shows that communities having greater control over scheme planning and operation and management are willing to pay. However, past government schemes have lacked community participation and meaningful involvement. This l ed to the selection o f unsustainable options and poorly maintained water facilities; (c) Lack o f capacity in local governments and communities to e f fc ien t lv plan, implement and operate new investments: The main challenges o f decentralization are the local institutions’ lack o f capacity to plan, construct and manage RWSS schemes, and the use o f non performance-based criteria for funds allocation; and (d) Absence o f effective monitoring and evaluation capacity: The government at state, district and village level lacks capacity to identi fy and address problems and take corrective actions in a t imely manner, and to the satisfaction o f local communities.

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Government Actions

Government o f India (GOI) Strategy and Actions

GO1 recognizes the need to make RWSS sector more effective and responsive to the needs o f communities and has initiated significant reforms in funding the sector. Starting with the Ninth Five Year Plan (1997-2002), GO1 i s committed to principles that: (i) treat water as an economic good; (ii) increase peoples' participation; (iii) reserve 20% o f funds to states promoting sector reforms; (iv) create stronger links o f RWSS to watershed programs; and (v) control overextraction o f groundwater. In allocating 20% o f sector reform funds to states, GO1 requires the state and local governments to: (i) adopt a demand-driven approach to RWSS development and empowerment o f user communities; (ii) focus on capacity building to support demand-driven investment program in RWSS; (iii) ensure an integrated approach to water supply, sanitation and hygiene; (iv) obtain a partial capital cost recovery and 100% O&M financing by the users; and (v) promote groundwater conservation and recharge measures. GOI's Tenth Five Year Plan goal aims to provide minimum water supply o f 40 lpcd to uncovered and partially covered habitations by 2004; and to habitations reemerging with problems by 2007, and sanitation coverage to 50% households by 2015. Under the Ra j iv Gandhi Drinking Water Mission, GO1 had introduced a three year US$550 mi l l ion p i lo t program to operationalize the demand-driven RWSS systems in 67 districts in 26 states, under which 2.9 m i l l i on households have contributed US$ 16.8 m i l l i on for the community led drinking water schemes o f their choice. About 28500 schemes have been completed and close to 20,000 schemes have been internalized (Atmarpam) by the community for operation and maintenance. For scaling up the approach, and based on the experience gained during the last three years in testing the reform principles under Sector Reform Pilots (SRP), GO1 has recently launched an improved version o f the sector reform program called "Swajaldhara" with operational flexibilities and provision of Memorandum o f Understanding (MOU) fo r state governments. Within a span o f 6 months GO1 has sanctioned to States US$ 100 m i l l i on under Swarajaldhara.

On the sanitation front, the Total Sanitation Campaign, promoting l o w subsidy to n o subsidy regime and demand generation, i s under implementation in 288 districts with total outlay o f US$ 692 mil l ion. GO1 and states have contributed approximately U S $ l 0 9 m i l l i on and the projects have uti l ized U S $ 52.5 mi l l ion. These projects a im to trigger demand for about 24 mi l l ion household toilets, 0.3 m i l l i on o f school toilets, besides large number o f women community complexes, rural sanitary marts, rural production centers etc. Recently, GO1 has decided to reward open defecation-free village panchayats, blocks, and districts with national awards (Nirmal Gram Puraskan).

Government o f Maharashtra (GOMI Strategy and Actions

In July 2000, GOM took a major pol icy decision to adopt demand driven and participatory approaches to RWSS service delivery and the principle o f cost sharing, both in rural and urban sectors. Maharashtra i s the f i rs t state in the country to apply the sector reform program state-wide. Since then, GOM has taken the fol lowing measures to implement the reform program: (i) issued operational guidelines o n community involvement and participation at a l l stages: identification, planning, designing, implementation o f RWSS facilities including procurement o f goods and services, O&M, repairs and replacements, and rejuvenation and rehabilitation o f facilities; (ii) transferred decision making authority to the beneficiary communities; (iii) enhanced powers o f Z i l la Parishads (district rural local governments) to undertake single village water supply schemes up to a capital cost of Rs.7.5 m i l l i on ( f rom the existing Rs.1.5 million); (iv) appointed a Committee to advise o n institutional restructuring o f the state-owned Maharashtra Jeevan Pradhikaran (MJP - Water Board) and taken a formal decision to restructure it; (v) pi loted GOI's Sector Reforms in four districts for water supply and sanitation and f ive districts for total sanitation campaign; and (vi) launched a KfW-assisted project in three districts to operationalize the reforms. In addition,

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GOM took a po l i cy decision in January 2003 to discontinue direct and indirect subsidies for O&M o f RWSS facilities in a phased manner. The implementation o f the above reform program (including phasing out o f subsidies and institutional reforms) as announced in various Government Orders wou ld be an integral part o f the project. During negotiations, assurances were obtained f rom GOM about i t s commitment to implementation o f the Sector Reform Program.

Maharashtra has also been in the forefront in implementing state-wide and community-based water conservation and sanitation programs, such as: (a) water harvesting (Shivakalin Paani Sathavan Yojana); (b) watershed development; (c) Mahatma Phule Jal Bhumi Sandharan; (d) sanitation campaign based on Sant Gadgebaba s clean village approach; and (e) Yashwant Gram Samruddhi Yojana. The watershed development program has received a state-wide recognition and acceptance by the people at large due to pioneering efforts o f local community leaders and financial support provided by rural finance institutions. Similarly, the ra in water harvesting program, the Sant Gadge Baba sanitation campaign, and the village-level participatory planning and development have also made remarkable strides as a result o f community mobilization and state contributions and incentives to VPs that are granted in a transparent and competitive manner. In particular, the Sant Gadge Baba sanitation campaign managed to mobilize about US$170 mi l l i on f rom local communities in three years as against GOM’s total investment o f about US$3.5 mi l l ion by way o f incentives. Each o f these programs has promoted local leaders and communities to take charge o f their water and sanitation issues, and to achieve, through self-help and voluntarism, both individual and common good, taking advantage o f the incentives provided by the state government. The proposed project wou ld build i t s strategies and programs on community involvement as successfully demonstrated by the above programs. In priori t izing individual districts fo r inclusion in the project, as much as 30% o f total points (loo), are given to the districts’ performance with regard to implementation o f the above mentioned programs.

On the sanitation front, GOM’s new strategy i s to promote “total sanitation” with a shift o f focus f rom construction o f latrines to changing people’s habits and behaviors. Maintaining and using hygienic latrines, washing hands, keeping food and water covered, using safe water and maintaining a clean environment by adopting measures l ike draindsoak pits and safe garbage disposal f o rm integral part o f the strategy. As a part o f this strategic move, GOM proposes to discontinue financing or subsidizing construction o f latrines for individual households. Instead, the new strategy focuses o n eliminating “open defecation“ through we l l designed Information Education and Communication (IEC) campaigns and community based incentives, supplemented by construction o f sanitary complexes fo r women and in rural schools.

T o take the RWSS reform agenda further, GOM would need to: (i) take up a massive I E C program state-wide, as a prerequisite for financing o f new investments in the sector; (ii) provide funds for the emerging investment programs in a l l districts, but in small batches o f villages to al low deepening and replicating o f the processes o f bottom up planning and community empowerment; (iii) build capacity o f VPs and communities in technical, financial and management aspects to be able to effectively handle the new responsibility o f defining their o w n development agenda including planning and implementation o f schemes, managing investment funds and later operating schemes without external financial support; and (iv) build capacity o f district and state level institutions to do the business in a new way by which their role changes f rom one o f designing, construction and/or service delivery to that o f providing support services to VPs and communities. GOM faces the challenge o f operationalizing the re fo rm agenda, and has requested IDA assistance to fill the financing gaps and also to become a partner in bringing i t s international experience to bear upon operationalizing reforms state-wide in a step-by-step manner.

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3. Sector issues to be addressed b y the project and strategic choices:

The proposed project wi l l address the above sectoral issues in Maharashtra and assist GOM in scaling up the sector reforms statewide, using the experience gained with implementation o f the community-based rain harvesting, watershed development, sanitation campaign, and participatory planning and development programs at the village level. Towards this end, Maharashtra and India, with support f rom IDA, intend to make a number o f strategic choices in implementing the project. These are as follows:

(a) Focusing o n the Poor, Tribals and Women and Building their Ownership and Capacity The project includes specific interventions to target the poor, tr ibal population and women. The extent o f "Below Poverty Line" population in a V P wil l be a key criteria for i t s prioritization for project support. The Women Empowerment Fund and Tr ibal Development Program wou ld a im at targeting and building capacity o f vulnerable groups, including tribal groups and women, for ensuring their effective participation in the project. Specifically, about 10% o f the total project cost would target tribals.

(b) Mainstreaming Decentralization: In order to ensure satisfactory service delivery and sustainability, the project wil l support the decentralization agenda by ensuring that funds and functions are transferred to the lowest appropriate level. This should make allocations more responsive to the poor, lead to more sustainable outcomes, and increase the power o f poor communities to negotiate RWSS development o n their terms. Specifically, the project wi l l devolve decision making and fund approval to Z i l la Parishad (ZP-district level government), Panchayat Samitis (PS-block level government), provide a central role to VPs in project implementation (planning, design and construction) with responsibility fo r operation and management o f RWSS services, build capacity and awareness and provide civic education to rural local governments. Panchayat Samitis wil l serve as v i ta l extended arms o f Z i l l a Parishads in capacity building and monitoring activities. The project will establish organic links between VPs, informal institutions and Vil lage Water and Sanitation Committees (VWSCs), with the latter acting as legal entities o f VPs, thereby eliminating conflicts or avoiding creating parallel power centers at the local level. The V P strengthening would be achieved no t only by transferring the above functions to VPs but also by developing a range o f sk i l ls within the village community (see i tem (d) below).

(c) Promoting Responsive and Accountable Public and Private Service Providers: One o f the important challenges o f the project i s to respond to the community demand in an effective and efficient way. T o this end, the project would promote development o f responsive and accountable publ ic and private service providers and local governments (VPs, PSs and ZPs) and smooth fund f lows within this system. This wou ld be achieved by widening the choice o f service providers, making service providers directly accountable to the community organizations, building capacity o f the community to negotiate with them and monitor their performance through report card systems. An incentive fund has been provided, o n a p i lo t basis, to improve management and governance o f VPs and ZPs.

(d) Intemated Approach: The project will integrate implementation o f water supply with sanitation and hygiene promotion. Further, the project wi l l promote cross-sectoral linkages, with watershed development, health, rural development, and women's development programs in order to maximize health and economic benefits o f improved water supply services.

(e) Ensuring Sustainabilitv: The sustainability o f the source i s cr i t ical for ensuring long-term sustainability o f rural water supply schemes. The project will provide communities with a menu o f technical options - some o f wh ich have been identified by GOM's study o n Water Resource Management and Technical Analysis and Options - that wil l be simple to implement, operate and maintain and facilitate service provision to socially disadvantaged sections and isolated hamlets. The project wi l l also integrate indigenous knowledge and practices w i th modem methods to give sustainable solutions fo r

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water supply and sanitation needs. Sustainable solutions wi l l also be achieved through participatory planning and implementation, and communities' contribution towards O&M costs.

Component

C. Project Description Summary 1. Project components (see Annex 2 fo r a detailed description and Annex 3 for a detailed cost breakdown) :

Indicative Bank- % of costs %of financing Bank-

(US$M) Total (US$M) financing A. Community Development & Infrastructure Building B. Institutional Strengthening C. Sector Development and Strengthening D. Pilot Component

187.00 69.6 126.00 69.6 54.60 20.3 34.50 19.1 4.50 1.7 3 .OO 1.7

12.50 4.7 7.50 4.1

2. Key policy and institutional reforms supported by the project:

As discussed in section B.2, the emerging pol icy and institutional framework in Maharashtra i s supportive o f the project's development objectives, and makes community management in RWSS a viable option for scaling up in the state. Moreover, this approach i s already being tested in the state through a GO1 pilot, a KfW project and the hands-on-learning pi lot undertaken as part o f this project preparation. The project wou ld further support implementation o f the fo l lowing policies and reforms, as agreed with GOM:

Strengthening of the decentralization process: The project wou ld strengthen local governments and rural communities' managerial, technical and financial capacity by (i) giving budget directly to village-level governments; and (ii) bridging the gap between communities and the district-level government by transferring planning and implementation to VPs;

Empowering communities by (i) building their s k i l l s to become cri t ical users and consumers rather than passive recipients; and (ii) introducing mechanisms for communities to express their demands. Communities would demand, plan, implement and manage their rural water and sanitation systems whi le covering operating and maintenance costs;

Ensuring efficient use of water by transferring water use planning and allocation functions to the communities and testing aquifer source sustainability;

Institutional Reforms: The project wou ld support GOM in implementing a time-bound road-map for restructuring o f the existing sectoral agencies such as the Ground Water Development Agency (GSDA) and the Maharashtra Jeevan Pradhikaran (MJP) to al ign them better in the context o f decentralization. G S D A and MJP play an important role in assessing ground water resources and implementing rural and urban water supply facilities, respectively. Recognizing urgency o f scaling up sector reforms and investment programs across the state, GOM has carried out a study during project preparation with the objective to restructure their institutional mandates and roles to make

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them more competitive at the market place and effectively responsive to community-driven programs. T o take the institutional reforms further, GOM will: (1) adopt a time-bound transitional action plan designed to achieve complete separations o f the O&M functions o f MJP f rom i t s other functions, and complete, by December 3 1, 2004, full implementation o f the transitional plan; and (ii) take necessary steps including preparatory studies and legislative measures, to adopt, by December 3 1,2004, a comprehensive and time-bound action plan for restructuring o f MJP;

Components

A. Investments 1. Drinking Water Supply -New schemes (irrespective o f technology choice) (i) Up to service level o f 40 lpcd

level subject to a maximum o f 55 lpcd 2. Drinking Water Supply - Rehabilitation of existing schemes (irrespective o f technology choice) (i) Up to service level o f 40 lpcd (ii) Incremental cost for raising service level from 40 lpcd to desired level subject to a maximum o f 55 lpcd 3. Rain Water Harvesting/Ground Water recharge measures 4. Sanitary Latrines and Drainage

(ii) CommunitylSchool latrines (iii) Community drains (iv) Soak pits B. VP Incentive Fund C. Operation and Maintenance (i) Upfront mobilization at the end o f implementation phase

(ii) Incremental cost for raising service level from 40 lpcd to desired

(i) Individual latrines (b)

(ii) recurrent O&M expenses (c)

0 Discontinuing, in a phased manner, direct and indirect government subsidies: GOM has already taken a pol icy decision to discontinue, in a phased manner, direct and indirect subsidies to local governments for O&M o f water supply facilities and streamlining management o f O&M functions. This reduction in subsidies wi l l be further supported during the project.

State

ZPS) Users VPs (through

Project VPs Tribal settlements Upfront Balance/ Total Upfront Balance Total Cash(a) Cash/ Cash (a) (Cash/

Labour Labour)

5% 5% 10% 1% 4 % 5% --_ 90195% 50% 50% 100% 50% 50% 100% --- _ _ _

5% 5% 10% 1% 4% 5% _-- 90195% 50% 50% 100% 50% 50% 100% --- _-- 5% 5% 10% 1% 4% 5% -_- 90195%

-- 100% 100% --- 100% 100% --- _I

5% 5% 10% 5% 5% 10% --- 90% 5% 5% 10% 5% 5% 10% --- 90% _- 50% 50% _ _ _ 50% 50% 50%

_I _- -_ -_ -_ 15% 85% I

Equivalent to 6 months' O&M expenses 100%

0 Cost Sharing Reforms: As an expression o f their commitment to participation and ownership, beneficiaries wi l l contribute to the capital cost o f the facilities, with a port ion to be paid upfront in cash. The fol lowing rules for the cost sharing by beneficiaries and VPs have been agreed:

3. Benefits and target population:

Benefits (Annex 4) to the rural poor include: (i) increased access to safe drinking water and clean and improved school, environmental and sanitation facilities; (ii) improved public health derived f rom enhanced hygiene and sanitation practices; (iii) financial savings and economic benefits derived f rom reduced health-related expenses; (iv) enhanced capacity o f local governments and communities to participate in development activities; (v) increased capacity o f disadvantaged groups (BPL, Scheduled Caste and Scheduled Tribe members) for social and

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collective endeavors; (vi) for women, reduced workload on water collection, improved privacy and comfort o f sanitation, and improved empowerment and leadership abilities; and (vii) more accountable, transparent and inclusive VPs and Gram Sabhas.

Target Population: Maharashtra i s the f i rs t state in the country that has launched a major effort to extend the sector reform program in a l l thirty-three districts o f the state. The project wil l directly benefit about 2800 VPs covering approximately 7 mi l l ion population. The beneficiary population wi l l be predominantly the rural poor including women. The project i s expected to directly benefit 0.5 m i l l i on tribals in 1700 tr ibal settlements, through the Tribal Development Plan.

4. Institutional and implementation arrangements:

Executing Entities: The project’s institutional model i s br ief ly described below and outlined in detail in Annex 2. Attachment 1.

At the village level, the Gram Sabha (village general body) wi l l b e the decision making body and wi l l approve Vil lage Ac t ion Plans. V P constitutes the primary executing agency. VPs wil l provide promotional and oversight role and Vil lage Water and Sanitation Committees (VWSCs), or Pada Vi l lage Level Water and Sanitation Committees (PWSC) in case o f tr ibal settlements, wi l l implement and manage the schemes. Together, VPs and VWSCsIPWSCs wou ld be responsible for: (a) planning, procurement, construction and O&M o f rural water and sanitation schemes; and (b) conducting monitoring and evaluation studies, with technical support provided by district-level governments and Support Organizations (SOs). T o ensure a wider base o f leadership and ease o f management, VWSCsIPWSCs wou ld delegate work to sub-committees for procurement, finance, supervision and social audit. In case o f RWSS schemes involv ing more than one village, multi-village water and sanitation committees wou ld be the executing agency.

At the district level, the ZP through i t s restructured Distr ict Water Management and Sanitation Committee (DWMSC) wil l facilitate, appraise, monitor and supervise project implementation. Addit ional expertise wi l l be brought in f rom SOs.

At the state level, the Water Supply and Sanitation Department (WSSD) wil l be the counterpart agency, responsible for overall coordination, promotion, monitoring and oversight pr imari ly as “guardian” to ensure that community participation, implementation and management o f water and sanitation services proceed smoothly and without undue interference f rom other government agencies andor unscrupulous contractors and non-governmental agencies.

Implementation Arrangements

Project Implementation and Processes: The project wou ld be implemented according to rules and procedures agreed in the Project Implementation Plan (PIP) and Community Operational Manual (COM). These documents outline the roles and responsibilities o f individual agencies and provide details o f project processes and project cycle. The PIP and COM are based o n the experiences gained during the intensive hands-on learning pi lot in 30 VPs in three representative districts (Thane, Satara and Osmanabad) and various preparation workshops, studies and analyses that were carried out during the course o f project preparation.The pilot, in particular, focused on validating various assumptions about community participation, community willingness, partnering capabilities o f local institutions and capacity building effort required. During negotiations, an understanding was reached with GOM that it wil l implement the proposed project in accordance with the institutional and operational frameworks as outlined in the PIP and COM. The C O M wil l be subject to periodic reviews jo in t l y by GOM and IDA,

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with stakeholder participation, to ensure f lexibi l i ty and address any constraints to successful implementation o f the program. Any changes in the PIP and in the COM would require IDA’S pr ior concurrence.

Sustainability and Scaling-up Strategies

The main focus o f the project i s o n the sustainability o f investments. An effort i s made to create mechanisms to involve a l l sections o f the communities in the selection o f technical options wh ich are affordable, and environmentally and operationally sustainable. For this purpose, the source sustainability analysis would be made part o f the participatory appraisal at the community level. The focus wou ld be o n developing l o w cost technical choices, with particular emphasis on recharge and conservation o f ground and surface water rather than o n construction o f schemes.

GOM would make a sustained effort to develop a large poo l o f service providers that wou ld be accountable to, and contracted by, VPs and communities. T o encourage the partnership between service providers and communities, the project wou ld promote: (i) developing a cadre o f community level service providers - para professionals; (ii) building capacity o f publ ic service providers to deliver services in a demand driven manner; (iii) facilitating interaction between private sector service providers and communities to expose the former to various opportunities and develop partnerships; (iv) developing capacity o f SOs that wou ld move f rom village to village and provide catalytic inputs; (v) building partnerships with service providers l i ke engineering colleges and polytechnics wh ich could become a source o f technical support for the communities; and (vi) hiring capacity building organizations that wou ld build capacity and mentor and coach district teams and SOs.

Project cycle

PIP outlines the project cycle and subproject cycle specifying key steps and sequencing o f activities to be performed in implementing the project. This wil l enable a l l partner institutions and other stakeholders to understand and agree upon critical activities and their timing, duration and interdependence for ensuring successful project implementation. At village level, the sub-project cycle involves f ive key steps, wh ich are planned and implemented by communities o n their own initiative: (a) start up/dissemination o f information; (b) pre-planning; (c) planning; (d) community implementation; and (e) post implementation.

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Phases Activities Milestones

Distr ict Teams appointed and trained Information . Hire district Capacity Building Consortium, District Teams . Sign MOU with ZP . Train D A M T & DFT

I

Pre-planning

Planning

Implementation

. Multi- stakeholder workshops Adequate No o f SOs empanelled . Accreditation, selection and training o f . sos Districts . Enlist technical service providers and . VPs selected suppliers . Conduct VPiblock sensitization to seek expression o f Interest . VPs fiuther disseminate project information through hamlet, group and women’s meetings and Gram Sabha

Orientation Programs conducted in

. Sel f selection o f VPs . Sign MOU between VP and ZP . VWSCs, SACS and WDCs formed GPs receive initial Capacity Building and trained

. Cross visits to learn about process . VAPs approved by GS . First PRA Capital contributions collected . Appointment o f SOsipara professionals 1

and training D A M T . Topical P U S to explore options First Tranch released . Select VWSC and other Committees . Train VWSC, VP and other Committees . GS to select option . Develop subproject proposal with SO

Fund . Topical PRAs conducted

VAPs appraised and approved by

I: Post-implementation

assistance GS approves subproject proposal Submit proposal for D A M T appraisal D A M T clears the proposal 1 st tranche released S ign contract with service suppliers Procure materials and labor Select village water person VP certifies completion o f works and 2nd tranche released 3rd tranche released Completion o f work

1 Training o f O&M team . Sustainability Audit conducted 1 Sustainability audit . Disseminate good practices and

lessons learned

Advance O&M o f 6 months collected SAC conducts Works Completion Audit VP submits Works Completion Repoi WSS facility commissioned

Financial Management (Annex 6B)

The financial management system proposed fo r the project i s adequate to meet GOM’s, local governments’ and communities’ project management needs as we l l as IDA’S fiduciary requirements as per OP/BP 10.02. The financial management framework envisages that the project will maintain accounts using existing Government accounting systems, with additional accounting and reporting processes that would be necessary to classify project expenditures by components/activities and disbursement

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categories. The project implementation agencies will prepare monthly/quarterly/annual reports required for project management at the village, district and state levels. The accounting and reporting system will be manual in the beginning and will move into a computerized environment during the l i fe o f the project. Assurances were obtained f rom GOM that the computerized Financial Management System (FMS) wou ld be established and operationalized by September 2005 and maintained thereafter.

Fund Flow: All project funds wil l be accounted for in dedicated accounts at the state, district and village-level governments. Community contributions wi l l also be remitted into separate Project accounts opened and operated by participating VPs. The upfront mobil izat ion o f partial capital contribution by the communities wi l l constitute a condition for releasing Project fund installments. Non-tribal habitations wi l l contribute 5% in cash upfront, before commencement o f implementation, and the balance 5% in the fo rm o f cash and/or labour before completion o f implementation. Tribal settlements wil l contribute 1 % in cash upfront, before commencement o f implementation, and the balance 4% in the fo rm o f cash and/or labour before completion o f implementation. Release o f funds to VPs for implementation o f schemes wil l be based o n achievement o f predetermined and mutual ly agreed physical and process milestones. Funds wil l be released in installments. About 2% o f the total sub project costs wi l l be released upon completion o f the village action plan, and submission by the VP o f an audited financial statement o f the project activity. Any savings in funds released to VPs o n the basis o f approved cost o f village action plans, o n account o f economy and efficiency wil l be retained by VWSCs/PWSCs for financing O&M and other activities related to subprojects. VPs’ funding requests for cost overruns, o n account o f faulty design or extraneous reasons, wil l be reviewed by the Distr ict Appraisal Team and approved by the D W M C in accordance with the norms and procedures agreed between GOM and IDA, and released to VPs through supplementary financing agreements. All payments against agreed Financing Agreements as released by the ZPs to the VPs wil l be treated as eligible expenditure for claiming reimbursement f rom IDA. The date o f release o f such installments to VPs will be the point o f el igibi l i ty for claiming reimbursement by GOM f rom IDA.

Monitoring, Learning and Evaluation (ML&E)

A Monitoring, Learning and Evaluation (ML&E) system wil l be established to monitor project progress, process and outcomes, with the objective o f generating analytical information on the project’s progress and performance, and disseminate this information among stakeholders to enable them to effectively address project implementation issues. Developing the ML&E system wil l be the responsibility o f the Operations & Monitor ing Team at the State level. Monitor ing wou ld cover: (i) inputs, outputs and outcomes; (ii) performance o f project organizations; (iii) project processes; and (iv) project impacts. Monitor ing for supervision wou ld focus on: (i) quality and quantity o f participation o f VPs, tr ibal settlements, VWSCs/PWSCs and women’s groups; and (ii) cash contribution o f communities. Participatory Monitor ing and Learning wi l l be especially designed for communities to enable them to monitor progress and process at the village level. As part o f monitoring and learning, six monthly audit (independent review) wou ld be carried out to ensure that processes and procedures as agreed in the COM are followed, technical standards are met, and social and environmental guidelines are followed. The lessons emerging f rom the independent audits wou ld be disseminated and discussed with the VPs, communities, district and state teams and SOs, and corrective measures wou ld be taken. Another dimension o f project learning would be cross-learning among the GOI, KfW and other programs within the state, as we l l as among other states in India. Among other instruments, Report cards will be used to ensure accountability o f VPs, service providers and SO to the community. L o w cost communications network o f information kiosks to link VPs to their district offices wi l l also be developed. I t i s proposed to in i t ia l ly connect 25 blocks (1 block in each district) and 263 villages (1 village in each block) electronically to test electronic data transmission at these levels. The districts and the Operations & Monitor ing Team wil l also be connected electronically for faster data transmission and feedback.

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A Monitor ing and Information System (MIS) wil l play a central role in the overall M&E system. The system wil l ensure transparency by al lowing access to information and records o n project physical and financial progress and reviews and reports on scarcity monitoring, water supply village action plan operations and maintenance, water quality management and sanitation village action plan monitoring. The computer-based system wil l ho ld and report o n the various indicators for the four phases o f the project: pre-planning, planning, implementation and O&M. Once the system i s implemented both at district and state levels, i t wi l l regularly and automatically collect the relevant information o n the indicators f rom the data being captured. The proposed M I S will be integrated with F M S for collecting financial information & GIS for water quality mapping, and aquifer management.

D. Project Rationale 1. Project alternatives considered and reasons for rejection:

(a) Continuing with Supply Dr iven Mode l as fol lowed in the f i rs t Maharashtra RWSS proiect: One option would have been to continue with the implementation model o f the f i r s t Maharashtra RWSS project, This model was essentially supply driven and did not deliver services to rural poor efficiently and on a sustainable basis. Therefore, this option was rejected at the outset.

(b) Decentralized service del ivenl through district governments: A second option wou ld have been to assign complete responsibility fo r project activities to district governments (ZPs), which have been given the lead role in decentralized planning and implementation o f development programs. However, because o f the large size o f the districts, ZPs tend to operate in a target driven, top down manner l ike centralized l ine departments. This approach wou ld have been against the project’s objective o f decentralizing service delivery function to VPs and user groups and at variance with the principle o f taking project implementation to the lowest appropriate level. This option was also therefore rejected.

(c) Single sector vis-a-vis multi-sectoral approach: RWSS i tsel f i s not a single sector, since i t wil l involve integrated delivery o f water supply, sanitation and hygiene promotion, and integrated water resource management at local level. Adding additional sectors wou ld put unsustainable stress on the implementing agencies and may dilute the quality o f implementation. Therefore, a larger multi-sectoral approach was rejected.

(d) The Proposed Option: The proposed project i s based o n the successful results o f the two recent IDA-Supported RWSS projects -Kerala and Kamataka 11- that have operationalized the demand driven approach and supported broader sector reform programs in the two states appropriately adapted to the Maharashtra situation. GOM has designed the project’s institutional structure based on a careful analysis o f the Kerala and Karnataka models and lessons leamed f rom the failures o f institutional arrangements o f the previous Maharashtra RWSS project. As a part o f i t s strategy to deepen the broad decentralization process down to VPs, GOM’s focus i s on using already existing district and local governments, with necessary checks and balances, and their empowerment with accountability. The proposed project wil l introduce devolution o f substantial management and financial powers to VPs, indeed, a major breakthrough for Maharashtra’s decentralization effort, as presently such devolution stops at the district level.

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2. Major related projects financed by the Bank and/or other development agencies (completed,

Ither development agencies IANIDA, Dutch and DFID

ifw, GO1

ongoing and planned).

Project (ongoing)

Community-based rural development and water supply projects in India

3ank-financed iura1 Water Supply and Sanitation :RWSS)

Second Karnataka Rural Water Supply and Sanitation Project (ongoing) Kerala Rural Water Supply and Sanitation Project (ongoing) Karnataka Rural Water Supply and Sanitation Project (closed) Maharashtra Rural Water Supply and Sanitation Project (closed) U P Rural Water Supply and Environmental Sanitation

Latest Supervision (PSR) Ratings

projects only) (Ban k-f;nan& Implementation

Progress (IP)

S

S

S

S

S

Highly Unsatisfz

Development Objective (DO)

S

S

S

S

S

3. Lessons learned and reflected in the project design:

National and International experience: The experience f rom the IDA-assisted projects in Paraguay, Bolivia, Ghana, China, Indonesia, Nepal and Sri Lanka have demonstrated effectiveness o f the community driven development approaches in improving sustainability o f investments. In India, GO1 and IDA partnership over the past decade has made impressive progress in successfully developing and implementing innovative strategies to improve the sector's performance (Section B.2). The OED's Impact Evaluation Report o f f ive IDA-assisted RWSS projects (May 1998) as we l l as the lessons learned f rom projects supported by other donors agencies (Dutch, DANIDA, DFID) in India have also provided valuable suggestions for designing participatory approaches, wh ich are the cornerstones o f this project. Some experiences and key lessons learned so far are as follows:

(i) Listen to the 'voices o f the poor': Listening to rural poor helps to design a better project with focus o n the needs and priorities o f the poor. The project preparation and design benefited f rom the participation o f the poor communities and VPs in 30 villages in the intensive hands-on learning p i lo t that i s being tested as part o f project preparation.

(ii) Empower communities to participate in decision-making and control o f resources: Community participation in planning and implementation i s one way to ensure that the most appropriate investments and service options are prioritized and sustainable. Community participation also facilitates cost sharing and increases the accountability o f local governments.

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(iii) Decentralize while providing adequate training and capacity building: Decentralization o f services and investment decisions at the lowest possible level increases accountability and typical ly improves service quality.

(iv) Create synergies between local governments and informal institutions: Past experiences have shown that villages with strong informal institutions fo r managing natural resources find it easier to internalize new approaches and technologies without necessarily competing with those set up by the government. In support o f project implementation, i t i s important to establish required links and synergies between informal and formal institutions.

(v) Build local ownership: Ownership o f the project design, at political, bureaucratic and operational levels, i s a prerequisite for project success. Conducive pol icy environment and willingness to learn by doing are equally vi tal for success.

(vi) Ensure sustainability through user fees and contributions: Community contributions toward capital costs wou ld assure sustainability o f investments. When user fees are levied for O&M operations, and contributions are collected toward the construction o f facilities, users can be expected to care more for the efficiency o f and for continued maintenance o f the facilities.

(vii) Develop adequate project monitoring system: Experience shows that an appropriate information, monitoring and learning system must be in place at the time a project i s launched in order to prepare the participating local government institutions and communities to avoid unnecessary delay in project implementation.

(viii) Long-term and phased horizon: Planning o f water supply and sanitation facilities should have a long-term horizon (say 30 years) and investments should be planned to al low for infrastructure to be built in a phased manner, as needs develop and resources permit. Hence, the programmatic approach i s critical for rural water and sanitation projects.

4. Indications of borrower commitment and ownership:

India has developed a national sector strategy (2003) wh ich i s in l i ne with the Bank strategy for rural water supply and sanitation. The GO1 l ine ministry, the Ministry o f Rural Development (MRD), i s committed to nationwide implementation o f the sector reform agenda contained in the national sector strategy. GOI's Raj iv Gandhi National Drinking Water Mission (RGNDWM) has init iated follow-up actions for nationwide dissemination o f the new reform strategy and for creating an enabling environment fo r i t s implementation. GOM has demonstrated i t s ownership o f reforms by: (i) taking a pol icy decision to implement and operationalize the reforms state-wide; (ii) restructuring existing agencies to al ign their role with the new approach; (iii) amending the Panchayat Raj A c t to empower village communities and strengthen devolution; and (v) phasing out direct and indirect subsidies.

5. Value added of Bank support in this project:

GO1 has requested IDA to assist a few select states in implementing sector reforms. It believes that IDA support will provide a strong demonstration effect nationwide. As for GOM, given i t s commitment to implement reforms statewide and sizeable investments that may be demanded by rural communities, IDA i s uniquely positioned to support both the reform process and the associated investment program in RWSS. In addition, IDA can make available to Maharashtra i t s considerable knowledge o f national and international experience and best practices in development o f the sector.

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E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4): 0 Costbenefit 0 Cost effectiveness 0 Other (specify) The economic analysis o f the project was carried out fo r six typical schemes, distinguished by technology/water source and terrain, and fo r the entire project. The main benefits quantified are: value o f t ime saved in collecting water, value o f incremental water consumed, health benefits and costs that wou ld be incurred without the project situation to maintain the existing water supply arrangements. Apart f rom these, environmental and institutional strengthening benefits are expected to accrue, but these have not been quantified. The project i s expected to save, on an average 2 hours per household per day, across different types o f schemes and technologies proposed under the project. The estimated rate o f return i s about 20% for the project as a whole. Sensitivity tests based o n assessed r isks indicate that the project i s able to absorb substantial negative impacts and s t i l l generate a positive ERR.

NPV=US$89 mil l ion; ERR = 20 YO (see Annex 4)

2. Financial (see Annex 4 and Annex 5): NPV=USS mil l ion; FRR = YO (see Annex 4) There are n o fixed financial revenues in the project. The O&M i s the responsibility o f households and local village institutions. For this reason, a financial cost-benefit analysis was not carried out.

Fiscal Impact:

The financing plan for the project provides that GOM would contribute about 27% o f the total project cost ($73.6 mil l ion) over a period o f five years, comprising o f both investment and recurring costs for the project period, including price and physical contingencies. The recurrent cost f rom Year 6 o f the project i s expected to be minimal since the bulk o f operating and maintenance expenditures o n rural water and supply facilities funded by the project wi l l be borne by the communities. In absolute terms, the estimated annual government contribution will range between $12-13 mil l ion, o r about 30% o f the annual outlay o f US$40.0 m i l l i on o n the water supply and sanitation. In view o f the pr ior i ty provided by GOM to ensure adequate and safe rural water supply along with total sanitation, GOM expects n o di f f icul ty in allocating the required counterpart funds for the proposed project. However in v iew o f the overall fiscal stress that the state has been undergoing in recent years, GOM expects to raise counterpart resources f rom the project primari ly f rom potential savings that wi l l be realized o n account o f the recent introduction o f reforms within the RWSS sector. For FY2003-04, GOM has made adequate budget allocation o f about US$ 2.6 mi l l ion (Rs. 130 mil l ion) toward the cost o f launching the project. GOM wil l make required supplementary budgetary allocations for the current year (up to March 2004) and ensure that adequate and timely counterpart funds are made available during the fol lowing years.

3. Technical: The project will support infrastructure building such as rural water supply schemes, ground water recharge measures including source strengthening, rain water harvesting measures, rehabilitation o f existing schemes, community and environment sanitation facilities such as group latrines, road side drains for disposal o f sullage and storm water, compost/garbage pits fo r disposal o f sol id waste and conversion o f unsafe sanitation technologies to safe sanitary latrines. Before construction o f any new assets, the focus will be o n rehabilitating the existing assets to the extent possible with conservation, reallocation and participatory demand management o f water as the main strategies to reduce additional water demand and consequent need for additional infrastructure. Adequate focus wi l l be given o n sustainability o f water resources by adopting various water recharge or conservation measures whi le planning the water supply schemes. The community wil l choose the desired technology and service

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levels, based o n their affordability, with the help o f SOs and district teams. A Technical Manual has been developed with various technical options, guidelines and codes o f practice to guide community and SOs in effective decision-making during planning and implementation o f schemes.

The Pilot ing o f Ground Water Aquifer Management i s expected to generate additional information and lessons fo r potential interventions under the Project for source sustainability. Most o f the water supply schemes are expected to be single village schemes, with simple technologies, which the communities can handle themselves. Only a few larger multi-village schemes wil l be funded by the project, where the source sustainability or water quality i s an issue. The project cycle wou ld be f ine tuned during the f i r s t year o f the project to suit the requirements o f multi-village schemes.

Community, support agencies and district teams would supervise quality o f works under implementation. Training wou ld be provided o n technical matters at various levels (village, district and state) and at various stages during planning, implementation and O&M stage. During implementation o f schemes, training wou ld be provided to the community on O&M before completion o f facilities. Skills o f Local resource persons wou ld also be developed to support the community in O&M as needed.

4. Institutional: GOM has taken a critical pol icy decision to shift the delivery mechanism for rural drinking water and sanitation f rom the traditional supply driven approach to the more sustainable demand-responsive approach. Although key sector institutions continue to operate in their traditional framework, the process o f institutional restructuring has been initiated through a series o f Government Orders in order to scale up reforms across the state, manage the transition, and successfully implement the reform program. GOM, after a careful study o f the existing systems and assessment o f the different options, has finalized details o f implementation models, including design o f fund flows, transfer o f decision-making authority and accountability to rural communities and VPs; staffing and s k i l l mix required at different levels; management practices, and linkages with existing sector institutions.

Considering that GOM i s implementing the reforms statewide, i t was decided early o n that the role o f existing sector agencies (MJP and GSDA) should be reviewed and restructuring plans implemented during the project implementation. Fol lowing internal consultation and discussion at key pol icy making levels, GOM will take necessary steps (including studies, legislative measures) to finalize a detailed and comprehensive time-bound action plan for the restructuring o f MJP and GSDA and wil l implement in the meantime an inter im option, separating the O&M function f rom a l l other functions, by December 31, 2004.

4.1 Executing agencies:

The main partners in project implementation and their key functions wou ld be: (i) GOM: funding, po l i cy support and creating enabling environment; (ii) state level water supply and sanitation department (WSSD): facilitation and monitoring, strategic planning, scaling up, and achieving program development objectives; (iii) local governments at district and block levels (ZP and PS): promotional, capacity support to VPs and communities, providing checks and balances and in RWSS faci l i ty appraisal, approval and funding, and ensuring proper implementation o f the project rules; (iv) VPs planning and implementation with full community participation and endorsements, management o f project funds; (v) user groups/communities: decision making, participation in planning, implementation and O&M; and (vi) private sector/SOs: social, technical, and management support to the implementing agencies and user groups.

4.2 Project management:

The project’s institutional arrangements are based o n the experience o f the IDA-supported RWSS

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projects in India where decision-malung power and control have been transferred to the local governments and village communities. The proposed institutional model also addresses the issue o f sustainability o f institutions, and proposes to improve and redefine the existing sector institutions. The proposed project would be managed as follows:

At the state level, the Water Supply and Sanitation Department (WSSD) - Jalswarajya Off ice - will be in charge o f the project, with a Project Director managing i t s day-to-day implementation o f the project. The Project Director will lead two supporting teams, the Reform Support Team (RST) and the Operations and Monitor ing Team (OMT). The first team wil l be responsible for the learning and knowledge management for reshaping sector policies while the second team will perform project implementation and monitoring progress and impacts o f the project. Considering the statewide spread o f activities under the proposed project, a small unit wil l be set up in each o f the six Divisions o f the state to monitor, provide quick feedback to the districts and conduct key progress and process checks at the district level.

At the district level, ZPs wil l be the focal point for implementation o f the project. The existing Water Supply Departments o f ZPs wil l be restructured into three teams to assist VPs and communities. The jo in t teams will: (a) facilitate, coordinate and guide community development and technical activities (District Facilitation Team); (b) ensure that the project addresses community priorities and fol low the principles and guidelines for project implementation (District Appraisal and Monitor ing Team); and (c) take care o f financial support activities while arranging and coordinating the financial audit o f project account for VPs (District Financial Management Team).

VPs wil l develop and implement Vi l lage Ac t ion Plans after these are approved by the Gram Sabhas. VPs will also receive and manage project funds, arrange to collect community contributions, water charges, etc., as approved by the Gram Sabha, and liaise with the district-level government. VWSCs wil l be the key community organization in a VP that wi l l be inclusive and responsible for planning, implementing and managing the local water and sanitation faci l i ty funded by the project. Thus, VWSCs wil l be the executing arm o f the V P and wil l remain accountable to the Gram Sabha and VPs by being entrusted with the responsibility o f carrying out the implementation o f the project.

VPs wil l engage SOs l ike f ie ld NGOs, self help groups, federations o f women organizations, publ ic sector agencies, private contractors (generally for larger multi-village schemes) with endorsement o f the Gram Sabha. SOs wil l catalyze formation o f VWSCs and develop their capacity to plan and implement sustainable solutions. They wi l l also carry out sensitization and awareness building campaigns whi le acting as facilitators and liaising with VPs, Distr ict Teams, ZPs and Gram Sabhas.

4.3 Procurement issues:

The Country Procurement Assessment Review (CPAR) was last carried out in 2000. A procurement review for the state o f Maharashtra has been completed in March 2003. Maharashtra has had a number of IDA funded projects over the years both under IBRD Loans and IDA Credits including the Maharashtra Rural Water Supply Project I which closed in June 1998. The state thus has extensive experience o f IDA procurement and consultant guidelines.

Community Procurement. Under the project, eligible communities wi l l undertake repaidrehabilitation or construction o f new drinking water schemes serving their VP/community through their own efforts based o n a demand driven approach. Therefore, most o f the procurements (works, goods and services) wil l be done at the V P level. The C O M gives detailed procedures, rules and methods o f community procurement.

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Other Project procurement. Procurement o f services and goods required for the project shall comply with the IDA’S procedures as described in the relevant Guidelines.

4.4 Financial management issues:

The Financial Management Manual (FMM) along with the Financing Agreements entered into between ZP and V P o n approval o f the village action plans wou ld include detailed guidelines o n the agreed financial management arrangements. The main challenges to satisfactory financial management o f the project relate to GOM’s fiscal abi l i ty to make timely releases o f counterpart funds and substantial r isks involved in VPs handling significantly larger sums o f money than they have in the past. The financial management arrangements set in place have consequently focused on: (a) seeking adequate commitments f rom GOM to ensure t imely releases o f funds; and (b) ensuring that the project invests substantially in building the capacity o f communities in book keeping and accounting through trainings to off ice bearers o f VPs and VWSCs and developing a cadre o f para professional book keepers. Important lessons learned f rom the implementation experiences in other R W S Projects and other Community Dr iven Development (CDD) projects in India have been incorporated into the design o f the financial management system. The financial management arrangements wou ld emphasize o n providing local level transparency, social audit and self-accountability. The institutional framework for the project envisages adequate levels o f staffing for financial management and accounting functions at the state, district and village levels (Annex 6).

Disbursements: Disbursements f rom IDA credit wou ld in i t ia l ly be made in the traditional system (reimbursement with full documentation and against statement o f expenditure (SOE)) and could be converted to the Report based disbursements at the option o f the GOM and GO1 after successful demonstration o f regular, t imely and adequate Financial Monitor ing Reports (FMRs).

Retroactive Jinancing: GOM has requested for retroactive financing o f US$2.5 m i l l i on to meet the expenditures incurred since March 1, 2003 including those that are anticipated up to Credit signing. The activities to be covered by retroactive financing are consistent with the project’s financing categories agreed with IDA.

Audit: The Comptroller and Auditor General o f India (CAG) through i t s offices in Maharashtra wi l l be the statutory auditor for the project. The AG’s off ice wil l conduct annual audit o f the operations o f the OMT at the state level, Drinlung Water Management and Sanitation Department at the ZP level and a selected sample o f VPs at the village level. The audit report wou ld consist of: (a) financial statements; and (b) audit opinion confirming whether the project financial statements have been prepared in accordance with consistently applied Accounting Standards and give a true and fair view o f the operations o f the project during the year and that the withdrawals f rom the IDA Credit made o n the basis o f SOEs/FMRs together with the procedures and internal controls involved in their preparation, can be rel ied o n to support the related withdrawals. Additionally, the auditor will be required to provide a management letter to project management highlighting findings during the audit. The TORS o f the audit has been prepared in agreement with IDA, and wil l be agreed with the CAG. The form o f annual financial statements to be certified will also be agreed with the CAG.

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5. Environmental: 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis.

G O M carried out the following studies: (a) Environmental Analysis; and (b) Report on water quality issues, based on representative testing o f drinking water sources in pilot project districts. An Environmental Management Plan (EMP) as part o f EA has been prepared giving details o f the environmental issues, specific measures to address these issues, funding o f activities for environmental protection and enhancement, and explicit environmental indicators to be monitored along with related institutional responsibilities. Public consultations were carried out in six representative project districts to identify environmental issues related to the project. These consultations were organized with the help o f local NGOs, consultants and the Jalswarajya office. The summary EMP has been disclosed in local language to villagers and other stakeholders. The environmental aspects have been dovetailed into the operational manual and the PIP for the project.

Environmental Category: B (Partial Assessment)

The key environmental issues are as follows: (i) Water Quantity issues: declining groundwater tables, drying up o f drinking water sources and competing demands for scarce groundwater. The project has developed specific measures to address and monitor water quantity issues; (ii) Water Quality issues: chemical contamination o f drinking water sources mainly due to fluorides, nitrates and salinity. The project supports the on-going G O M water quality monitoring program and wil l build institutional capacity for water quality testing / analysis, and taking corrective actions. Fluorides, nitrates and TDS w i l l be specifically monitored in the hotspot areas; bacteriological contamination will be monitored by each V P using simple residual chlorine tests; (iii) Household and Environmental Sanitation issues: usage o f improved sanitary facilities i s low (as per survey in year 2000, only 10-13% o f rural households were using private latrines; improvements are expected to emerge during the current survey in 2003); need for soak pits, drains for sanitary disposal o f sullage. The project w i l l promote safe and appropriate soak pits, compost pits, sullage drains and lane improvements as necessary.

5.2 What are the main features o f the EMP and are they adequate?

Main features o f the EMP:

(i) Measures to address water quantity issues: Rejuvenation and rehabilitation o f existing water supply sources; provision o f new drinking water supply systems; source protectiodstrengthening measures to enhance the availability o f drinking water; periodic review/assessment o f groundwater source; piloting o f integrated water resource management in six watersheds /aquifers.

(ii) Measures to address water quality issues: Use o f alternate safe sources (ground/surface water) for drinking purposes; dilution o f contaminated water by safe water; limited use o f fresh water for drinking and use o f contaminated water for other uses l ike washing, bathing; promotion o f rooftop rainwater harvesting in schools and houses; community based de-flouridation to be used as a last option; research and development for identifying cost effective and acceptable de-flouridation technologies. Project supports the on-going G O M water quality monitoring program and wil l build institutional capacity for testing, analysis & dissemination and taking corrective actions: (a) VP to monitor bacteriological contamination using simple residual chlorine tests; (b) districts to conduct water surveillance o f a minimum 10% sources, and coordinate with VPs as required; (c) state level WSSD to conduct water quality tests for 100 % sources in hotspot areas on a priority basis.

(iii) Measures to address household and environmental sanitation issues: The project supports GOM's total sanitation strategy (zero open defecation) and has a major hygiene component to improve sanitation

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and hygiene behavior.

(iv) Guidelines on Environmental Safe Technologies: The project wi l l develop simple and community fr iendly Guidelines (in local language) providing a menu o f environmentally safe technologies for water supply schemes, recharge structures, householdcommunity toilets, drains, soak pits and compost pits by December 31, 2003. These guidelines will be incorporated in the COM and Technical Manual, and revised during the project implementation to reflect lessons and on-the-ground experiences.

5.3 For Category A and B projects, timeline and status o f EA: Date o f receipt o f f inal draft: April 20,2003

5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms o f consultation that were used and which groups were consulted?

Public consultations were carried out, as part o f environmental screening in six representative project districts. Preparatory meetings were he ld with CEOs and officials o f other departments, including RDED, Health and Family Welfare, Groundwater, Watershed, Irrigation etc. as we l l as target groups at the VP/community level. Advance notices in local language, including details o f the proposed project components were distributed to the rural public, elected representatives and other functionaries at V P and district levels. The notices were displayed in local V P offices and public places l i ke village temples, schools and bus stops. The summary (in local language) o f the draft EA report, including environmental issues, proposed mitigatory measures and performance indicators have also been placed at V P offices and other publ ic places o f the representative districts for comment and feed back.

5.5 What mechanisms have been established to monitor and evaluate the impact o f the project o n the environment? D o the indicators reflect the objectives and resul ts o f the EMP?

Environmental indicators specifically related to the E M P have been prepared to monitor and evaluate the impact o f the project o n the environment. These indicators have been dovetailed in the various project components, along with agencies responsible for monitoring the indicators. The state level agency wi l l be responsible for collecting and analyzing data. These indicators have been incorporated in the PIP.

6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes.

K e y social issues relevant to the project relate to the following: (i) establishment o f inclusive and accountable local institutions which are responsive to the needs o f rural population in general and rural poor in particular; (ii) empowerment o f rural women by giving them greater access, choice and voice in water and sanitation in particular and improving their access to development opportunities in general through institutional and capacity building support; (iii) improvement in health status by bringing changes in personal, domestic and environmental hygiene behavior/practices; (iv) build capacity o f local governments (specifically VPs) to improve their effectiveness, transparency and accountability; and (v) empowerment o f tr ibal groups in identi f ied areas to access water and sanitation services and other development opportunities.

Gender issues: Lessons learned f rom the sector have repeatedly pointed towards the essential ro le o f women and the difference made by their meaningful involvement in the achievement o f outcomes and the sustainability. Issues related to gender have received emphasis during project design and preparation. Specific measures to be considered include: (i) representation in local level institutions; (ii) opportunity for women to participate in al l stagedphases o f the project cycle; (iii) capacity building effort that wil l focus not only o n water and sanitation issues, but also o n issues related to development, skill building

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and income generation activities; and (iv) linkages with other government schemes and development opportunities. To address gender issues, GOM carried out an Operational Gender Strategy and Ac t ion Plan, and the recommendations o f the strategy have been incorporated in the project design and implementation model. A self-standing Women Empowerment Fund subcomponent included in the project wou ld help build capacity of women to play an effective role in R W S and develop s k i l l s to help them generate income and employment. GOM has recently passed an order fo r the conduct o f separate "Mahila Gram Sabhas" (women's village meeting) to precede the village Gram Sabha meeting. This wil l greatly strengthen the participation o f women in the project.

6.2 Participatory Approach: H o w are key stakeholders participating in the project?

Participation and consultation: The project preparation involved extensive consultation with cross section o f stakeholders at different levels (Village, District, State). Several rounds o f discussions were held with elected representatives, NGOs, local communities and officials. GOM organized several multi-stakeholder workshops to discuss the approach and implementation modalities. The project also tr ied to build o n the Sant Gadge Baba campaign (sanitation campaign) providing incentives to the community participation in sanitation activities. The implementation o f a pi lot during project preparation also helped in keeping the consultation process in the context o f ground realities.

The Social Assessment (SA) was carried out as part of project preparation using participatory methods. The participation and consultation framework has been designed based o n a detailed stakeholder and institutional analysis. The project wi l l invite partnership with a range o f stakeholders in planning, implementation and post-implementation phases of the project. Considerable experience i s already available based o n experience from projects implemented earlier in the country and elsewhere. In addition, a Tr ibal Development Plan has been prepared and disseminated, based o n extensive consultations with stakeholders.

Rqles o f a l l key stakeholders involved in the design of the project (ZP, VPs, local institutions, NGOs, CBOs, vulnerable groups, communities, publ ic sector and professional agencies) have been identi f ied and incorporated in the detailed sub project cycle developed fo r the project. Strengthening o f the processes o f Gram Sabha wil l greatly facilitate meaningful participation o f local communities, no t only in this project, but also in general development o f the village. In addition, the "Mahila (women) Gram Sabhas" innovated by GOM in this project, wou ld facilitate greater voice and choice for rural women in the planning, implementation and subsequent operation and maintenance o f the water supply and sanitation facilities. This process of consultation and documentation wou ld continue in implementation and post implementation phases to ensure continuous learning and sharing.

6.3 H o w does the project involve consultations or collaboration with NGOs or other c iv i l society organizations?

The project will be implemented in collaboration and consultation with the Community based local institutions, NGOs and private sector organizations during a l l stages o f the project. NGOs and other support organizations will pr imari ly play the role o f facilitators and trainers. In addition, they wi l l facilitate development o f inclusive decision making processes in VPs and VWSCs, and would intensively promote the participation of women and other vulnerable groups in the implementation and management.

Preparation: As mentioned under section 6.2, the project preparation activities involved extensive discussion with NGOs and c i v i l society organizations. In addition, as part o f the NGO capacity assessment exercise, four regional consultation workshops were conducted with extensive participation by 121 NGOs.

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Institutional arrangements: The institutional arrangement at the State and district levels wi l l involve advisory groups with membership f rom NGOs and c i v i l society organizations.

Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)*

Implementation: The implementation arrangement wi l l involve support agencies (NGOs, private sector consultants, technical agencies), who wil l assist rural communities (i) to articulate their demand, (ii) to plan and implement the schemes and subsequently and (iii) to manage them. These support agencies wi l l also help build capacity o f stakeholder groups and institutions.

6.4 What institutional arrangements have been provided to ensure the project achieves i t s social development outcomes?

Special provisions have been built for scheme level beneficiary committees (SLBC) fo r inclusion o f vulnerable groups (tribals). The project wil l ut i l ize existing local government institutions in combination with the mechanism o f communities, supported by NGOs, CBOs and private sector. Thus i t wi l l address not only sustainability o f water and sanitation services, but also indirectly influence governance issues at broader level. The project combines the lessons learned f rom past experience with user groups and the decentralization and governance agenda. User groups help in greater inclusion o f poor and vulnerable groups, but may undermine decentralized institutions under the constitution. Involv ing decentralized institutions helps address long term governance and sustainability issues, but may lead to elite capture and poor performance due to l imi ted capacity o f these (decentralized) institutions. The project addresses both inclusion and governance issues by providing space for inclusion (through Gram Sabha, Mah i la Gram Sabha, participatory processes, broad basing the village water and sanitation committee structure under the Vi l lage Panchayat, introduction o f scheme level committees where appropriate, participatory processes in planning, implementation and post implementation phases etc.) and at the same t ime putting the decentralized institutions (VP, PS and ZP) in charge o f delivering the expected outcomes and supporting them with capacity building and greater delegation o f financial and decision making powers.

6.5 H o w wil l the project monitor performance in terms o f social development outcomes?

The project wi l l have a monitoring system wh ich wi l l track progress (physical and financial), process and outcomes. Indicators and milestones have been developed for each stage o f the sub project cycle. The monitoring systems include process monitoring, self-evaluation by communities, participation monitoring by mult iple stakeholders and community report cards on project performance, participatory sustainability monitoring and a clearly defined Social Audit process for which a government order has been already issued by GOM. The process steps in the sub project cycle include collection o f baseline data, wh ich wou ld be used fo r comparison with project achievements.

0 Yes 0 NO

7. Safeguard Policies:

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7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

Policy /Compliance Measures and Comments Environmental IGOM has carried out an Environmental Analysis and a study on water quality Assessment (op 4-01)

Indigenous Peoples (OD 4.20)

Involuntary Resettlement (OP 4.12)

I

I

issues, and has prepared an EMP giving details o f the environmental issues, specific measures to address these issues along with explicit environmental indicators to be monitored and the institutional responsibilities. A Tribal Development Program has been prepared as an integral part of the project in accordance with the OD 4.20 on Indigenous People, and specificall) targets the tribal population by providing them access to water supply anc sanitation. The OP 4.12 i s not triggered as the project does not envisage any involuntarj resettlement. Much of the land required will be from publicigovemment lands. I r limited cases, land may have to be acquired through purchase from willing seller 01 through voluntary donations. Assurances will, however, be sought from GOM that (a) the project will not resort to involuntary land acquisition; (b) the project wil resort to minimize land acquisition and take up construction activities as far as possible in Government lands free o f encroachments; (c) when some acquisition i s inevitable, it will ensure that: (i) land free o f dispute or encumbrances i s procurec at market rates accompanied by registered transfer o f legal rights to the appropriate institution (VPNWSC) through a sale deed or memorandum o f understanding (MOU); and (ii) such acquisition will not bring the seller's holdings belou economically viable holding size (Normal economic holding size i s considered as I H a or 2.5 acres) or cause significant adverse effect on livelihoodincomes 01

involve physical displacement; (d) in the case of voluntary land donations: (i) the land should be free of squatters, encroachments and encumbrances; and (ii) the lega rights transferred to the appropriate institutions (VP/VWSC) through a registerec deed or MOU; (e) Al l land donations would be documented and ZP will arrange foi an examination o f al l land donations by an independent agency; (0 provision will be made for redressing grievances before commencement o f construction activities and (g) neither big nor small dams will be built under the project.

F. Sustainability and Risks 1. Sustainability:

Annex 2 provides details o f various mechanisms to enhance sustainability o f investments. These are summarized below:

Ownership and financial sustainabilitv: VPs and communities will have to apply to receive project support adopting transparent eligibility and selection criteria. This should eliminate the risk o f lack o f ownership. Capital cost sharing and responsibility o f O&M by beneficiaries are the f i rs t indicators o f the demand for improved RWSS services. Since VPs and communities/VWSCs wil l have control over their resources and w i l l be the main decision-makers, there i s a greater chance that they will also raise resources to operate and maintain the schemes on a sustainable basis. Inclusion o f a l l sections o f society (particularly poor, women, and the more vulnerable groups) in decision-making, implementation and receiving project benefits, i s essential for sustainability. The project's specific interventions for targeting these groups (Women Empowerment Fund, Tribal development Program, and poverty focus in VP selection criteria, etc.) should have a positive influence on sustainability.The project also intends to facilitate selection o f the technical options based on the affordability o f water charges so that

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communities choose only viable and sustainable options and schemes.

N

M

M

Technical: Adopt ing scientific methods for locating selected groundwater sources and implementing associated water conservation and groundwater recharge measures wi l l enhance sustainability o f yield. In the case o f surface water schemes (only a few expected), necessary allocation for drinking water wi l l be obtained f rom the irrigation authorities. The sustainability o f physical works will be improved by adopting sound design and engineering practices and monitoring the quality o f construction and construction materials. The operational sustainability wi l l be strengthened by training o f operators, preventive maintenance and maintaining water quality by regular treatmentldisinfection.

Project's self-selection process, dissemination o f project rules and process wou ld ensure that a l l eligible communities receive the required information and take an informed decision t o participate in the project benefits. Project's capacity building program wou ld ensure that VWSCslcommunities and VPs get proper training in planning, implementation and management, financial management, including O&M o f RWSS facilities. Project rules wou ld ensure that women have adequate representation in the committees and

Institutional: The project's institutional arrangements are in l ine with GOM's pol icy o f moving away f rom direct service delivery to a facilitating function. All the three tiers o f the rural local government (ZP, PS and VP) have the main responsibility o f project implementation. These institutions are sustainable since these are integral parts o f Maharashtra's decentralization governance implemented since 1962.

However, VPs wi l l be responsible for planning and implementation for the f i r s t time and the ZPs and PS will, for the f i r s t time, play a supporting role for the VPs in carrying out these functions rather than doing these themselves. The r isks involved are: (i) VPs might lack capacity and VPs may neglect interests o f some villages and may not be inclusive o f certain social groups; and (ii) ZPs might lack appreciation o f and the capacity to manage demand responsive approach, lack community development s l u l l s and may be too busy to focus o n the project because o f their other responsibilities.

The project design would provide an array o f mitigatory measures to minimize these risks, wh ich include: local communities through Gram Sabhas and VWSSCs wil l be responsible fo r planning, designing and implementing rural water and sanitation schemes; VPs wil l have control over resources and their allocation; the project's strong VP capacity building programs; support f rom experienced SOs and engineering consultants to both VPs and ZPs; leadership and accountability o f the Chief Executive officers o f the ZPs; and expanding s h l l base, systematic orientation and team building o f ZPs. In addition, the project wi l l enhance institutional sustainability by building capacity o f community organizations in management, implementation and O&M and developing a cadre o f para-professionals in each village who could provide these services across a range o f assets.

2. Critical Risks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):

Risk I Risk Rating I Risk Mitigation Measure From Outputs to Objective Project may not be adequately promoted in a l l eligible communities. Therefore the investment decisions may not be driven by VPslcommunities' demands

VWSCsIcommunities may lack sufficient capacity to manage and sustain the facilities

Women may not be permitted to participate in key decisions and in O&M

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I management

ZPs may no t support V P empowerment and may no t be willing to shift role f rom implementer to facilitator

Reduced fiscal capacity o f GOM may affect the t imely releases o f counterpart funds.

Since VPs wil l be handling significantly large sums o f money than they have in the past, there i s a risk o f misuse/misappropriation o f funds at VPs. There i s also the risk that the funds may

From Components to Outputs RWSS may rate l o w in people's priorities especially when users' fees and contributions are to be collected

SOs/consultants/support organizations may lack capacity to support VPs and communities Depletion o f groundwater due to

competition f rom agricultural users and powerful elite wi l l affect schemes constructed under the project

Overall Risk Rating

Risk Rating - H (High Risk), S (Substantial Ris

S

M

S

S

M

S

M M (Modest Risk), N

play an effective decision making role; special efforts wou ld be made to build confidence and capacity o f women. ZPs' mandate i s precisely to support demand responsive approach and devolution o f power; the ZP staff wi l l be trained to have participatory mind-set and s k i l l s wh ich are critical for project success. GOM has demonstrated a high level o f commitment to the project and has assured IDA that counterpart funding for the project wi l l be accorded the highest priority. The fund f lows for the project will operate through separate PL Accounthank accounts. Adequate institutional arrangements have been put in place to ensure that the project funds are used as intended.The financial management arrangements have been designed to recognize the r isks and provide the fol lowing mit igation measures: (i) separate bank accounts, adequate book keeping arrangements as conditions fo r the approval o f the sub-projects; (ii) funds wil l be l inked to milestones and results o n the ground and would be released in small installments; (iii) financial management training, to ensure that a cadre o f book-keepers and accountants are developed; (iv) simple formats o f accounting and report ing have been designed and included in the FMM.

Early-on implementation o f the E C program in conjunction with assessments to identi fy sections o f population unable to contribute as we l l as o f the communities' willingness and affordability to pay wi l l address this risk. A rigorous el igibi l i ty and selection criteria and capacity building programs have been included in the project. (i) Sub-projects will examine source

sustainability cr i t ical ly before undertaking schemes design; (ii) groundwater recharge using conventional and non-conventional techniques in-built in the project; (iii) service levels would be determined in consultations with community; based o n source capacity

degligible or Low Risk)

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3. Possible Controversial Aspects:

None

G. Main Loan Conditions 1. Effectiveness Condition

None

2. Other [classify according to covenant types used in the Legal Agreements.]

Overall

(a) GOM shall implement the Project in accordance with a state-wide Reform Program designed to promote a demand-driven and fully participatory approach and an increased devolution o f responsibility to local governments and communities in the RWSS (Program) as set for th in various Government Orders/Resolutions since July 2000, and supplemented and amended thereafter to implement the reforms.

(b) EA and the Tribal Development Plan as agreed with IDA.

GOM shall implement the project in accordance with the PIP, Community Operational Manual,

Institutional Provisions

(c) GOM shall: (i) establish and thereafter maintain required project staff in WSSD and Reform Support Team and Operations and Monitor ing Team; (ii) cause Z i l la Parishads to establish within two months after Project Effectiveness, and thereafter maintain Distr ict Teams to facilitate, appraise and monitor implementation o f project activities; (iii) designate and maintain Distr ict Project Director and Deputy Project Coordinator; and (iv) designate the requisite number o f suitably qualified and experienced tribal, environmental, procurement, accounting and other staff needed to assist in the implementation at the district level. The above recruited staff should exclusively work o n the project and be retained for at least the f i rs t three years.

(d) GOM shall: (i) adopt a time-bound transitional action plan designed to achieve complete separation o f O&M function o f M J P from i t s other functions and complete, by December 3 1, 2004, full implementation o f the transitional plan; and (ii) take necessary steps (including studies, analyses, appropriate legal and statutory instruments) to adopt by December 3 1, 2004, and thereafter submit for IDA review and comments, a detailed and comprehensive time-bound action plan for restructuring o f MJP.

Data Collection and Management

(e) GOM and ZPs shall carry out an evaluation o f implementation o f the on-going intensive hands-on leaming pi lot batch in 30 VPs, no t later than December 31, 2004; review with IDA the lessons learned; and thereafter incorporate such lessons in the design and implementation o f subsequent batches o f sub-projects.

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(f) G O M and ZPs shall carry out: (i) an evaluation o f implementation o f the f i rs t batch o f subprojects to be carried out in Tribal villages, not later than December 31, 2005; review with IDA the lessons learned; and thereafter incorporate such lessons in the design and implementation o f subsequent batches o f tribal sub-projects; and (ii) a comprehensive evaluation to measure the outcomes o f such sub-projects by an external agency before the Closing Date.

(g) G O M shall not later than January 3 1 o f each year, starting f rom 2004, prepare an annual RWSS program for the following financial year, based on parameters o f a demand driven approach, in order to assess potential financing o f such a plan by IDA Credit and other sources o f funding (including GOI, state and local budgets, and donor contributions), and finalize the annual plan not later than March 15 o f that year taking into account IDA’S comments thereon.

(h) G O M shall carry out a six-monthly independent technical, social, environmental and process audit review o f project activities beginning March 3 1, 2004, and thereafter throughout project implementation period; review with IDA and other stakeholders lessons learned and thereafter take corrective measures.

Village Act ion Plans

(i) G O M shall cause participating ZPs to release project funds (including IDA Credit) to VPs participating in the project in a timely manner and in the form o f grants to VPs and tribal Paras to finance subprojects on terms and conditions acceptable to IDA, including but not limited to the following: (i) grants shall be used exclusively to finance goods, works and services required for preparation and approval o f Village Action Plans and in accordance with terms and conditions set forth in the Community Operational Manual (COM), EA and TDP; (ii) the amount o f each grant shall be calculated according to a predetermined cost sharing formula as agreed with IDA and specified in COM; (iii) goods, services and works shall be procured in accordance with procedures referred to in Schedule 1 o f the Project Agreement and set forth in COM; and (iv) ZP shall s i g n a Financing Agreement with participating VPs in the model as specified in the COM.

M id -Te rm Review and Reporting

(i) 30,2006.

GOM, jointly wi th IDA, shall carry out a mid-term review o f the project not later than September

(k) with the format agreed in the PIP.

G O M shall submit to IDA Quarterly Progress report on the progress o f the project in accordance

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Land Acquisition

(1) GOM shall ensure that (i) the project shall be implemented as far as reasonably practicable o n publicly-owned land, using exclusively land free f rom squatters, encroachments or other encumbrances; (b) the project shall not involve any involuntary land acquisition; and (c) where unavoidable, land acquisition shall be kept to the strict minimum, and shall be undertaken exclusively o n the basis o f mutual ly agreed sales transactions or voluntary land donations, and in accordance with guidelines and procedures set forth in the PIP.

Financial Management

(m) GOM shall establish and operate, n o later than September 30, 2005, and thereafter maintain throughout the project implementation per iod a satisfactory computerized financial management system, in accordance with the financial management manual agreed with IDA.

(n) staff as required to meet the requirement o f the project and as agreed with IDA.

GOM shall maintain throughout the project per iod adequate levels o f accounting and finance

(0 ) bank account for the project funds; and (ii) maintain separate record and accounts for the said funds.

GOM shall cause each o f the VPs participating in the project to: (i) open and maintain separate

(p) GOM shall provide in a t imely manner and in the grant format: (i) credit proceeds to the participatory districts required for project implementation; and (ii) provide additional funds f rom i t s own resources in amounts sufficient to cover Maharashtra's share o f the cost o f the project.

H. Readiness for Implementation 1. a) The engineering design documents for the f i rs t year's activities are complete and ready for the

start o f project implementation. [x 1. b) N o t applicable.

2. The procurement documents for the f i rs t year's activities are complete and ready for the start o f project implementation.

quality. 3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory

7 4. The fol lowing items are lacking and are discussed under loan conditions (Section G):

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1. Compliance with Bank Policies

0 2. The following exceptions to Bank policies are recommended for approval. The project complies 1. This project complies with all applicable Bank policies.

with al l other applicable Bank policies.

Country Director Mekna M. Munshi Team Leader Sector Director

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Annex 1: Project Design Summary INDIA: Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

Hierarchy of Objectives Key Performance

indicators Sector-related CAS Goal: Poverty Reduction through :a) Support to implementing sector reforms through )artnership and programmatic ipproach

b) Improving access to rural nfiastructure

Sector Indicators:

Al. State wide application o f demand-based participatory approach to RWSS service delivery

A2. State subsidies for RWSS investments reduced

B1. % o f rural households (particularly vulnerable groups) having access to safe and sustainable water and sanitation services

state Sector reports commitment to policy reforms i s sustained and adequate

Jroject Development 3bjective: :A) Increasing rural iouseholds' access to mproved sustainable lrinking water and sanitation ;ervices

B) Institutionalizing lecentralization o f RWSS iervice delivery to Rural Local 5ovemments and communities

I Outcome I Impact Indicators : Al. 90% o f rural (project) households having access to safe and adequate sources o f water and improved and sustainable sanitation services with appropriate source strengthening measures undertaken A2. 75% tribal (project) households having access to safe sources o f water and improved sanitation services with appropriate source strengthening measures undertaken A3. 20% reduction o f incidence o f water-related and water-bomediseases A4. Improved perception o f 75% households on the quality o f and access to clean water and safe sanitation services B1.75% o f (project) V P s planning, implementing and managing sustainable RWSS services B2.90% o f V P s accessed project funds

'reject reports:

surveys ndependent Impact :valuation social Impact Assessments

;tate sector reports ndependent Monitoring and <valuation Reports ;ocial Impact Assessments

(from Objective to Goal)

State maintains ownership o f the reforms and provides continued support to implement the reform program state-wide

Source sustainability and managing competing demands on water resources

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2ommunity Report Cards

3eneficiary Assessments

;ocial Assessments

Participating local governments buy-in the new service delivery services and fulfill their part o f management and financial responsibilities

Hierarchy of Objectives Iutput from each :omponent: L. Community Development m d Infrastructure Bui ld ing i1. Village level capacity iuilt to plan, implement, nanage and maintain water upply and sanitation services

12. Enhanced sustainability of iources through water ,echarge and watershed ictivities

i3 . Water supply and ;anitation facilities upgraded indo r constructed, )perational at their installed :apacity, with appropriate iource strengthening measures md full O&M cost recovery

B. Inst i tut ional Strengthening B1. New decentralized service ielivery model in place and :ffectively functional

Key Performance Indicators

Output Indicators:

Output Indicators:

Al . l 75% VWSCs constituted, trained in ski l ls development and fully managing scheme operations.

A1.2 90% VPs to conduct a minimum o f 12 Gram Sabhas per year.

A1.3 90% (in project VPs) Village Action Plans prepared, vetted and approved by Gram Sabhas.

A1.4 50% (in project VPs) women in leadership positions in VWSCs, SACS and VPs .

A1.5 90% (in project VPs) V P members trained in project principles.

A2.1 40% sources strengthened through water recharge and watershed activities.

A3. 70% water supply facilities constructed, operational and running on a full cost recovery basis.

A3.2 90% households receiving 40 lpcd water throughout the year.

A3.3 90% schools covered by functioning hygienic sanitatior facilities.

A3.4 50% households using hygienic sanitation facilities.

B1.l 80% state-level staff trained in Project Principles and Processes.

Data Collection Strategy ~

'reject reports:

i x monthly Supervision Leports

lix monthly Independent iudits

'eriodic Reports

j i x monthly Supervision ieports

Six monthly Independent iudits

Critical Assumptions :from Outputs to Objective)

Project will be adequately ?romoted in al l eligible :ommunities. Therefore, the investment decisions will be i r iven by Wsicommunities' fiemands

Village Panchayats and other tiers o f local government will have capacity to manage and account for project funds

VWSCsicommunities will have sufficient capacity to manage and sustain the facilities

Women will participate in key decisions and in O&M management

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3. Sector Strengthening 31. RWSS Sector vfanagement improved hrough informed lecision-making and nowledge sharing.

32. Water Quality blonitoring

11. Local Government ncentive Fund

B1.2 75% Z P members trained in community development and participatory methods.

B1.3 75% funds transferred to VPs within 7 day service standard.

B1.4 60% Tr iba l Pada Water and Sanitation Committees constituted, functioning and collecting cash contributions.

C1.l 12 (six-monthly) advocacy workshops and other leaming and knowledge management activities organized.

C1.2 70% districts submitting complete Distr ict Informat ion Management Reports on time.

C1.3 40% communities where Report cards are developed and operationalized.

C1.4 25% project VPs having access to and capable o f using electronic media to communicate.

C2.1 60% VPs where water quality i s tested on a regular basis: (a) at source; (b) at point-of-use.

C2.2 Improved perceptions o f 60% households regarding linkages between water quality and health

'eriodic Reports

;ix monthly Supervision teports

;ix monthly Independent iud i ts

'eriodic Reports

doni tor ing Reports

hpervis ion reports

{valuation Report on p i lo t

Leport Cards

'eriodic Reports

'eriodic Reports

:Ps will have adequate apacity to support VP mpowerment and will b e d i n g to shift role from mplementer to facilitator

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)1.1 VPs' capacity built to iroduce truly participatory levelopment plans

11.2 ZPs' facilitating role in he delivery o f RWSS services trengthened

12. Groundwater Aquifer danagement Pilot

1)3.O&M Pilot Fund

Project Components I Sub-components: A. Community Development and Infrastructure Building A1 Community Development

A2 Community Infrastructure

A3 Tribal Development Program

B. Institutional Strengthening

B1 Capacity Building

B2 IEC - Including Hygiene & Sanitation Promotion

B3 Monitoring and Leaming

B4 Project Management

C. Sector development and Strengthening

D1.l.l 70% V P s producing approved participatory development plans

D1.2.1 Tested approach for institution building o f ZPs replicated in at least 6 districts

D2.1 VP level GWMA formed in participating VPs

D2.2 Confederation o f GWMAs formed in 6 pilot areas

D2.3 Sustainable aquifer management model developed and disseminated among stakeholders

D2.4 Legal and regulatory framework developed for scaling up and discussed with key stakeholders

D3.140% VPs expected to put to use their existing non-functioning RWSS

Inputs: (budget for each component)

US$ 187.0 US$26.00

US$132.00

US$29.00

US% 54.60

US$ 12.85

US$ 10.00

US$3.8

US$ 27.95

US$4.50

<valuation Report on pilot :xperience

>raft Government Notification

'roject reports:

:ommunities are wil l ing to ollaborate (particularly armers using groundwater for rrigation)

;uf€icient political will exists or supporting the ecommended measures

from Components to htputs)

- 35 -

C 1 Knowledge Management for Policy Support

C2 Water Quality Monitoring

D. Pilots

D1 Local Government [ncentive Fund

D2 Aquifer Management Pilot

D3 O&M Pilot Fund

E. Unallocated

US$ 1.00

US$3.50

US$12.50

US$4.00

US$ 5.00

US$ 3.50

US$10.00

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Annex 2: Detailed Project Description INDIA: Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

Project Development Objectives

The development objectives o f the proposed project are to: (i) increase rural households' access to improved and sustainable drinking water and sanitation services; and (ii) institutionalize decentralization o f Rural Water Supply and Sanitation (RWSS) service delivery to rural local governments and communities.

Project Area

The RWSS sector reforms wil l be implemented in the entire state (33 districts). Whi le the proposed RWSS project wou ld cover 26 districts, the remaining 7 districts are covered by GOI's Sector Reform Pilots (SRP) and KfW programs. The project wil l be implemented in four successive batches o f VPs and tribal settlements during a f ive year period. The first phase o f nine districts wi l l be launched in October 2003 and the remaining 17 districts by June 2004. In i t ia l community development work including Information, Education and Communication (IEC) activities have already commenced in 9 districts and al l 26 districts wou ld be covered by about the end o f Year 1 o f the project. Among districts applying for inclusion in the project, those showing the threshold level o f preparedness, by participating in orientation and capacity building programs etc., wil l be included in project implementation.

Self-selection Criteria o f Village Panchayats

Consistent with the demand-driven nature o f project investments in RWSS, VPs will be included in the project by adopting a self-selection process. All the VPs in the project area wi l l be eligible to apply, provided they agree to the project rules. If in any batch, the number o f VPs applying i s more than what the project can support in that batch, then the VPs wil l be selected based on a predetermined prioritization criteria and weightage. These are: (i) quantity and quali ty o f available water and state o f existing WSS facilities; (ii) proportion o f B P L and tr ibal families; (iii) level o f dues collection efficiency; and (iv) agreement to adhere to the project rules. Within a selected VP, the villages already having safe water supply o f more than 40 lpcd or VPshillages applying on ly for sanitation facilities wi l l no t be eligible to receive project support. The quali fying criteria fo r VPs are included in the Community Operational Manual and wil l be readily accessible to a l l stakeholders.

Project Components: The project will include the fol lowing four components: By Component:

Project Component A - US$187.00 million Component A: Community Development & Infrastructure Building. This component consists o f the fo l lowing three sub-components : (i) Community Development; (ii) Community Infrastructure; and (iii) Tribal Development Program.

A1 : Community Development ($26.0 million). This sub-component wi l l finance three main activities: (i) Community Capacity Building; (ii) Women Empowerment Fund; and (iii) Vil lage Panchayat Strengthening.

(i) Community Capacity Building. The objective o f this sub-component i s to facilitate the formation o f inclusive, responsible and ski l led VWSCs and to build their capacity and empower them to plan,

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implement, operate and maintain water supply and sanitation facilities through a participatory process o f informed decision-making and collective action within the ambit o f Gram Sabhas and VPs.

Activi t ies to be financed under the sub-component wi l l include: (a) establishment o f an inclusive and accountable VWSC; (b) preparation and implementation o f a community-based Vil lage Ac t ion Plan; (c) development o f Gram Sabha as a participatory, transparent decision-making forum; (d) assist VWSC, VP and other local community organizations such as women’s groups in capacity building; and (e) develop a cadre o f para-professionals for efficient implementation and management o f the local water and sanitation facility.

The community organization and development aspects in i t ia l ly require a high level o f facilitation and capacity building o n an intensive basis. The project wou ld use SOs in the Districts and State for catalyzing formation o f VWSCs and developing their capacity to plan, implement and self manage. On technical, managerial and other social aspects, VWSCs wou ld be supported by DFTs wh ich wi l l include members who will have various types o f expertise. In addition, VWSCs wou ld approach various service providers such as GSDA, MJP and private sector agencies to assist in planning and implementation phases. VWSCs wou ld also be encouraged to use services o f CBOs like Federation o f Self He lp Groups to take some responsibilities in implementation. I t i s expected that SOs’ role wou ld taper o f f as VWSCs develop independent capacity for self management and their skill base improves.

(ii) Women Empowerment Fund. The objective o f this sub-component i s t o mainstream women’s participation in water management, sanitation and village development activities. I t i s designed to empower women in building and strengthening partnership with VPs by forming a Women’s Development Committee (WDC); facilitating women’s full and inclusive participation through Mah i la Gram Sabhas and the main Gram Sabhas; facilitating women’s participation in VWSCs, Social Audit Committees and other sub-committees in leadership roles and build women’s capacities for undertaking economic and village development activities through sk i l ls training and access to Women Empowerment Fund.

The sub-component will finance activities in support o f women’s empowerment including exposure visits, workshops o n mobil izing women, entrepreneurship training, personality development workshops, sk i l ls development training; and fund mobil izat ion training. WDCs, one in each o f the participating VPs, wil l comprise mainly o f women members (at least 75% o f the total) f rom various self-help groups. WDCs, with support f rom gender facilitators, wi l l develop Women Empowerment Plans that wi l l include capacity building, development o f s k i l l s and fund requirements for undertaking economic and village development activities, with a focus on water and sanitation. Whi le the seed money wi l l be targeted at women f rom BPL families, a l l members o f women’s groups will be encouraged to federate at the village level and link to financial institutions for increased access to credit. Each VP will be eligible fo r funds to the tune o f US$2,000 (approx.) towards these activities 60% o f wh ich i s earmarked fo r capacity building and the balance towards seed money (40%).

(iii) Village Panchayat Strengthening. The objective o f this sub-component i s to build the institutional capacity o f VP so as to enable i t to perform the guiding, coordinating and monitoring roles o f Project implementation at the village level. V P strengthening wi l l consist o f building in: financial management, implementing social audit processes, promoting Gram Sabha-based inclusive decision-making, revenue generation (including water taxes), water conservation and distribution, sanitation and hygiene promotion, and O&M. Technical assistance wou ld be provided to VPs for improving effectiveness and viabi l i ty o f both o ld and new water supply schemes. Specific capacity building modules and institutional arrangements wou ld be developed at ZP level for providing this support. SOs having experience in

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working with PRIs would be involved in this process. This sub-component wi l l finance VPs’ essential office and communication equipment, furn i ture and contractual staff h i red fo r purposes o f financial management, accounting services and capacity building activities. This sub-component wou ld also finance VP’s cost o f orientation and training o f i t s staff in community driven development including cross-learning and exposure visits.

A2. Community Infrastructure. ($132.0 million) This sub-component wi l l finance: (i) Water Recharge and Source Strengthening; (ii) Water Supply Schemes with a combination o f new investments and rehabilitation o f existing investments; and (iii) Community School and Environmental Sanitation Infrastructure. Communities will plan, implement and manage water supply facilities through VWSCs in collaboration with VPs.

(i) Ground Water Recharge and Source Strengthening. The recharge and source strengthening activity i s a step toward long-term sustainability o f rural water supply. T o ensure that rural water supply schemes are constructed on a groundwater resource that i s dependable, the project wi l l support measures to increase recharge to groundwater systems including simple check bunds in gullies to complex diversion and inf i l t rat ion structures and inject ion wells to art i f ic ial ly recharge groundwater. For longer term sustainability, however, communities must practice water management (balancing demand and supply) measures at aquifer level. This has been provided for separately in the fo rm o f a p i lo t component.

(ii) Water Supply Schemes. Objective o f this sub-component i s to develop cost-effective and sustainable water supply facilities either by way o f improvement o f existing facilities or by setting up new facilities through a process o f community consultation, collective action and technical facilitation. The implementation o f the Swujuldhuru program o f GO1 wil l be suitably dovetailed so that project processes are consistently followed. This sub-component wi l l finance construction, rehabilitation and improvement o f drinking water facilities. The majori ty o f the schemes (about 90%) will be dependent on groundwater and the remaining wi l l use surface water. Communities wil l choose affordable and cost effective technologies f rom a menu of possible options consisting o f dug wellsihand pumps, mini water supply schemes, piped water supply schemes, rain water harvesting, and rehabilitation and strengthening o f existing water supply schemes. User-friendly technical guidelines have been developed to assist communities in choosing appropriate water supply and sanitation options during the course o f the preparation o f the village action plans. Although priori ty wi l l be given to rehabilitating existing facilities, the project wil l not routinely finance RWSS facilities that were commenced by GOM and i t s agencies or communities pr ior to the introduction o f the sector reform framework, especially those started under the on-going master plan. Such ongoing schemes can be considered by IDA only o n a case to case basis and only i f the project rules are applicable. Technical aspects o f RWSS are provided in the PIP and the Technical Manual.

(iii) Community, School and Environmental Sanitation Infrastructure. This sub-component will complement GOM’s new strategy for promoting total sanitation wh ich recognizes that the sanitation goes beyond the installation and use o f latrines. Maintaining a clean environment by adopting suitable measures l ike drainsisoak pits for sullage disposal and safe disposal o f sol id waste wou ld be supported. In addition, project will finance sanitary complexes for women, and school water supply and sanitation. These would be implemented in conjunction with activities o f GO1 supported TSC.

A3. Tribal Development Program. ($29.0 million). The objective o f this sub-component i s to build institutional capacity o f tribals and improve their access to sustainable water and sanitation services. with specific focus o n tr ibal settlements and groups. The Tr ibal Development Plan wi l l include financing o f the fo l lowing activities: (i) community development including technical assistance to build community

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level capacity o f tr ibal population to self-manage their activities; (ii) support to infrastructure for drinking water supply including source strengthening, water conservation and recharge measures, community sanitation, environmental and hygiene promotion; (iii) development o f para-professionals especially for supporting health initiatives; and (iv) empowerment o f tr ibal women and youth by implementing the Women Empowerment Fund.

Project Component B - US$54.60 million Component B: Institutional Strengthening This component consists o f the fo l lowing four sub-components: (i) Capacity building; (ii) I E C including Sanitation and Hygiene Promotion (SHP); (iii) Monitor ing and Learning; and (iv) Project Management.

B1: Capacity Building ($12.85 million). The objective o f this component i s to develop a shared vision and build required competences among key stakeholders at state and district levels to enable them perform their respective roles. This sub-component wil l fund capacity building activities to strengthen ZPs, PS, SOs and State-level agencies. Project expenditures for capacity bui lding wi l l include training/exposure visits, technical equipment, purchase o f computers and other off ice equipment, and furniture.

At the district level, this sub-component wi l l strengthen project ZPs (26) to carry out their new role efficiently, and wi l l build capacity o f SOs. Specifically, the sub-component wi l l finance: (a) capacity building consortium in each district that wou ld be responsible fo r training o f ZPs, PSs and SOs (in planning and implementation) at district/ b lock level so that they can help implement the reform program and respond to the capacity bui lding needs at the village level; (b) community development and infrastructure training for district level staff including (i) training in IEC, change management, skills development, participatory approaches, community mobilization, finance and accounts and procurement; (ii) training in community infrastructure such as source strengthening and water supply facilities; water conservation; household, community and environmental sanitation; and (iii) training and s k i l l development in areas such as program design and management, participatory needs assessment, budgetary and financial management, information technology, and M& E; and (c) exposure visits, study tours, workshops fo r district teams and state teams.

At the state level, this sub-component will assist GOM to develop i t s staff s k i l l s in the areas of community development and infrastructure, water supply and source strengthening, water conservation, environmental sanitation, IEC, water quality monitoring, and project monitoring and learning.

B2: IEC including Sanitation, and Hygiene Promotion ($10.00 million). The objective o f this sub-component i s to develop and implement a development communication strategy in the State wh ich wil l focus on promoting behavioral changes among a l l stakeholders towards improved sanitation and hygiene practices and empowering the rural poor in their interactions with partnering institutions. This sub-component wi l l finance (a) activities fo r promoting safe water supply and use, sanitation and hygiene; (b) the Women Empowerment Fund and (c) the Loca l Government Incentive Fund. The sanitation and hygiene promotion wou ld include supporting GOM's new sanitation strategy o f stopping open defecation and hygiene behavior change. The Operations and Monitor ing Team at the state level wil l be provided with services o f an I E C specialist and a Health Communication Specialist, and the Distr ict Facilitation Teams (DFT) at the Distr ict level with funds for communication and dissemination equipment, access to media, and production and distribution o f display posters, folders and pamphlets to households, wa l l writings and paintings, street plays, and other media events.

I E C wil l pr imari ly focus o n a core set o f the most crucial health protection messages relating to the importance o f (a) water disinfections and safe home storage; (b) hand washing after defecation and

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before preparing food; and (c) using latrines and toilets versus open-field defecation. Innovative demonstration methods will be used to enhance learning effectiveness.

B3: Monitoring and Learning ($3.80 million). The objective o f this sub-component i s to monitor performance and progress of the project and disseminate it among a l l stakeholders, for learning f rom the lessons and empowering them to work in partnership fo r the attainment o f Project objectives.This sub-component wi l l finance establishment and strengthening o f an ML&E system that wi l l serve the needs o f project agencies at a l l levels including the state, ZPs, VPs and communities -with the objective o f generating analytical information on the project’s progress and performance, and disseminate this information among stakeholders to enable them effectively address project implementation issues. Through this component, the state level agency will take o n an expanded role to promote knowledge sharing. The ML&E system wil l facilitate learning and empowering o f stakeholders to work in partnership to realize project objectives in a t imely and effective manner. Expenditures in this sub-component will mainly be for impart ing training o f team members in ML&E concepts and methods in the areas o f rural water and sanitation and providing them with tools and off ice equipment to perform their tasks more efficiently. Using the principle o f “carrying tasks at the lowest appropriate level”, communities wi l l be responsible for carrying out tasks for monitoring quantity (inputs and outputs) and quality at their level. The sub-component wi l l also finance expenditures o n ML&E studies and consultancy, design workshops, workstations, internet connections and networking, study tours, information review and dissemination, learning melas, and analytical work o n project design, implementation and impact.

Health Impact Monitor ing will be undertaken to judge the project effectiveness in improving public health. The results o f the monitoring wi l l again be a powerful teaching tool to villagers in showing the impact o f healthy practices; and wi l l help provide alerts and corrections that must be made if the schemes are fai l ing to deliver expected benefits.

This sub-component wil l also fund a report card system to facilitate performance monitoring o f various institutional groups that work on achieving the project’s development objectives, as an instrument o f accountability across them. The report card system wil l enable the partnering institutions l ike Mah i la Mandals, VWSCs, VPs, and Distr ict Leve l Teams to monitor each other in a transparent, non-confrontational way.

B4: Project Management ($27.95 million). The objective o f this sub-component i s to (i) strengthen the capacity o f the ZP to perform successfully i t s new facilitating roles and (ii) set-up and strengthen state level institutional arrangement for pol icy development and coordination and monitoring so that the reform program in water supply and sanitation sector i s scaled up throughout the State. This sub-component wi l l finance project management costs at the district and state levels. At the district levels, the expenditures wou ld include setting up o f DWMSCs including costs o f contracted professional services, off ice furniture and equipment, transportation and incremental operating costs such as government staff incentives, travel and subsistence. At the state level, the sub-component will finance setting up the o f OMT, R S U and six small units at the Div is ion level (including professional costs, transportation and associated incremental operating costs).

Project Component C - US$4.50 million Component C: Sector Development and Strengthening. This component consists o f the fo l lowing two sub-components:

C1: Knowledge Management for Policy Support ($1.0 million). The objective o f this sub-component i s to establish, an optimally linked learning network, involv ing state, district and community level

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stakeholders, aimed at exchanging and using information and knowledge relating to various aspects o f the sector and supporting pol icy development. This sub-component wi l l finance establishment o f a knowledge management and pol icy support system to support GOM’s statewide implementation o f the reform program. Expenditures under this sub-component include: (a) consultancy contract fees for design and implementation o f project and sector information system; (b) purchase o f computers, servers, printers, (c) costs o f networking, website development and hosting; (d) studies, workshops, exposure visits, dissemination o f lessons learnt among stakeholders and provision o f technical advisory services; and (e) studies to further develop restructuring o f MJP/GSDA.

C2: Water Quality Monitoring ($3.50 million). The objective o f this sub-component i s to institute an effective water quality monitoring system so as to ensure safe water to the communities. This sub-component will finance: (i) statewide one time testing o f a l l drinking water sources and subsequent follow-up measures; (ii) water quality monitoring and surveillance activities o f state agencies; and (iii) introduce a system to empower village communities to monitor performance o f state agencies. Expenditure financed wil l include testing, analysis and mapping o f water quality o n a statewide basis, incentives to water quality testing staff at district level and costs o f village level sample testing for bacteriological contamination. At the village level, a simple water qual i ty monitoring system wil l be developed talung into consideration the lessons learned f rom the Kerala and Karnataka I1 RWSS projects. Mahi l la Mandals wil l be trained to monitor the water quality using simple kits and the community wil l be empowered to demand independent testing o f water, if a doubt arises on the quality o f water.

Project Component D - US$12.50 million Component D: Pilot Component.

Pilot ing N e w Initiatives: The project wi l l support implementation o f three pilots, which seem fundamental to improve decentralization and governance o f district and village-level institutions; to introduce aquifer-based supply and demand management o f water to enhance sustainability o f water sources with reference to communities’ broad-based priorities for diverse usages o f water; and to develop and scale up a model for O&M o f water supply facilities that wou ld expand beyond the proposed project. The lessons learned by these pi lots could be potentially replicated sector wide through future GOM or donor-assisted projects.The three sub-components are:

D1: Local Government Incentive Fund ($4.0 million). The Local Government Incentive pi lot wil l support selected VPs and ZPs to develop, beyond the needs o f the rural water and sanitation sector, an approach to institutional building to become more effective, accountable and responsive and contribute to improving quality o f decentralization, devolution and local governance in Maharashtra. The Ministry o f Rural Development (MRD) has developed decentralization pol icy and service delivery systems for community infrastructure in a demand driven manner, and i s looking to develop institutional capacity within V P and ZP to manage decentralized services and become effective and inclusive institutions. The capacity o f the ZP needs to be developed not only in the context o f facilitating and supervising this project, but also as institution o f good and effective governance at the district level. The Incentive Fund for ZPs wil l provide grants to nine selected ZPs at about $150,000 each to make them more accountable to people and assume a greater development role. ZPs will use the project grants to finance expenditures on consultant fees for institutional restructuring and capacity development, including for budget making, implementation, monitoring and evaluation; introduction o f new information technology systems and equipment.

The incentive fund wil l support about 225 VPs in nine districts with one-time grants ranging between $8,000 to $10,000 equivalent. The p i lo t wou ld fund investments in using and adapting innovative approaches used in Gadge Baba Abhiyan (sanitation campaign) for stimulating VPs who have worked

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o n management, inclusion and good governance to participate in a development market place and show case their efforts. Based o n this competitive process, selected VPs wou ld be provided intensive capacity building support in various areas including participatory planning and budgeting, community organization, promotion o f self help groups, inclusive decision making, community based procurement, financial management, negotiation skills and development o f community report card system to support user evaluation o f services provided by VP and self evaluation by VPs. This support wou ld be provided through SOs, ZP and we l l functioning VPs. This wil l enable VPs to formulate and implement village development plans.

The key outcome o f the proposed p i lo t would be a tested inst i tut ion building approach fo r ZPs wh ich could be scaled up to include the other districts o f Maharashtra. The project would also invest in cross ZP learning and knowledge management activities to draw key lessons for other decentralization programs o f GOM. The lessons learned wou ld be shared and used to initiate dialogue with both MRD and ZPs to develop a programmatic approach to developing demand driven approaches in decentralization.

D2: Groundwater Aquifer Management Pilot ($5.0 million). The objective o f this sub-component i s to develop and test approaches for holistic and sustainable management o f water resources with the involvement o f key stakeholders. This sub-component wi l l finance implementation o f a p i lo t activity in participatory management o f water sources in six representative districts in terms o f geo-hydrological, agro-climatic, and socio-economic conditions. The p i lo t will generate information fo r potential interventions required for achieving water source sustainability.

The main elements o f the Ground Water Aquifer Pi lot are to: (a) build capacity o f stakeholders in the pi lot area for sustainable management o f groundwater resources; (b) analyze current state o f ground water availability and use-patterns and their implications to source sustainability within the p i lo t area; (c) provide information to stakeholders o n ground water availability and sensitize them on the need for community-centered demand management o f drinking water with a focus on sustainability; (d) develop sustainable ground water aquifer management model that i s community-centered and managed to ensure drinlung water source sustainability; and (e) develop legal and regulatory framework that GOM could put in place for scaling up ground water resources management o n a sustainable basis.

The activities under the p i lo t wi l l include: (a) technical analysis o f the p i lo t areas (baseline survey and social assessment o f p i lo t areas covering prevailing geo-hydrological, agricultural, social and economical conditions; establishment o f piezometers for continuous water level and water quality monitoring; monitoring o f cropped areas and other water uses; and development o f GIS database); and (b) I E C to develop awareness and understanding among a l l types o f water users that (i) water resources (both surface and ground water) available to the communities are no t unl imited and therefore, need to be used efficiently and judiciously; (ii) limited water resources must be used to provide l ivel ihood to the community as a whole adopting participatory, equitable, and demand management approaches; (iii) reduced water use can potentially maintain individual households’ current income levels if they adopt new methods o f cropping and irrigation; and (iv) feed-back and community-management i s important fo r effective design and implementation o f ground water legislation. Gender-specific messages for rural women, who exercise a significant influence over water use within households and in agricultural operations will fo rm part o f the IEC.

Expenditures in this component wil l be on: (a) collection and analysis o f geo-hydrological, agricultural and socio-economic data; (b) IEC campaigns for building awareness about ground water problems; (c) forming Ground Water Management Associations (GWMA) at VP level which wil l be federated into

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associations fo r geo-hydrologically compact areas; and (d) design and implementation o f physical works for recharging depleting aquifers and increasing water availability.

D3: O&M Pilot Fund ($3.50 million). The main objectives o f the p i lo t are to develop: (i) an O&M capacity building model for ongoing drinking water supply schemes, which are outside the purview o f the proposed project’s community infrastructure component; and (ii) an action plan for scaling up the model to eventually cover the entire state. With GOM’s adoption o f the RWSS sector reforms, new investments in the sector wou ld be carried out using participatory demand led approaches that emphasize capacity building o f local government and 100% O&M financing by users. However, there are a large number o f villages in the state with water supply systems that were implemented earlier in the supply driven mode. In such villages, while water supply systems may be functioning (often below design performance standards), the O&M arrangements have no t yet been streamlined ( tar i f f setting, ta r i f f collection, preventive maintenance etc.). As a result, these systems are operationally and financially unsustainable. Consequently, the risks o f break downs are high whi le the repair costs wi l l increase progressively. If remedial measures are no t taken o n time, the probability o f premature system failure i s high and correspondingly, higher cost investments are needed to bring these systems back to working condition.

At present O&M costs are covered through indirect subsidies (maintenance support by block level mobi le repair teams without adequate cost recovery) o r direct subsidies (such as scarcity funds). In addition there are several cases, where the systems have been implemented, but have no t been taken over by local governments (ZP, VP) causing a financial burden o n the state. Besides, the real cost to community i s much higher due to inadequate delivery o f water supply and inconveniences due to break downs etc. Communities o n the other hand are indifferent to the need for their involvement in and support to O&M arrangements, as there was n o community o r local government involvement in the design and implementation o f these schemes.

The pi lot ’s activities wil l be carried out in i t ia l ly in nine districts, selecting 3 - 5 villagedschemes in each district. The villages would be selected f rom among those with functioning schemes in the district, representing different typologies (hand pump, mini water supply, piped water supply and multi village). A taskforce wou ld be constituted comprising 5 professionals with expertise in community development, gender, costing/financial management, engineering and ground water recharge. The software professionals (3 o f them) wou ld be contracted professionals and the remaining 2 technical professionals wou ld be drawn from existing block level agencies. The team would visit selected villages/schemes, carry out diagnostic assessment o f current situation, carry out IEC activities fo r mobi l iz ing local people (with special focus on women) conduct topical PRAs related to 0 & M with local communities and VPs.

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Annex 2 Attachment 1

Institutional Model and Implementation Arrangements

GOM wil l implement the proposed RWSS program using an institutional model in which: (a) VPsNWSCs will be the focal point for project implementation. They wi l l be responsible for planning, procurement, construction and O&M o f schemes, with technical support provided by ZPs, and other support agencies (e.g. SOs, CBOs, GSDA, private consultants); (b) at district level, the ZP wil l be the f inal authority for a l l project-related ahn is t ra t i ve , financial and technical approvals; (c) project implementation funds wil l be passed o n by GOM in installments to ZPs and f rom ZPs to VPsNWSCs; (d) VPsNWSCs wil l be responsible for management o f construction funds including expenditure approvals and accounting; in exceptional cases where schemes cut across VPs, PSIZP level committee wil l be the appropriate implementing agency; (e) VP/Village/Habitation selection wi l l be based on transparent el igibi l i ty and prioritization criteria; and (f) institutional arrangements fo r multi-village water supply schemes will be developed, with cost sharing rules remaining the same as fo r single village facilities.

Institutional Arrangements at Village Level

The fol lowing chart shows institutional arrangements at the village level (details are provided in the PIP and COM). The focus i s on creating a sustainable and participatory institutional structure that ensures responsive, inclusive, accountable and efficient governance, for project implementation. The implementation approach will empower users by giving them decision-making responsibilities and access to ready-to-use information, by providing appropriate slul ls, by creating an enabling environment and by devolving financial management responsibilities to the appropriate level o f government.

Gram Sabha i s the general body consisting o f a l l persons registered in the electoral roles within the area o f a VP, and i s a statutorily recognized institution fo r participatory decision-malung at the V P level. Through the provisions o f the Bombay Vil lage Panchayats (amendment) A c t 2002, the GOM has vested Gram Sabhas with substantial powers in matters dealing with social and economic development within the VP. These include the following: regular Gram Sabha meetings; separate meetings o f women members pr ior to regular meetings o f Gram Sabhas; selection o f individual beneficiaries for state government schemes; power to approve local development plans, and grant permission to the Panchayat for incurr ing expenditure under development scheme. With regard to the RWSS project, participating Gram Sabhas will fo rm VWSCs (sector-specific “Village Development Committees”) in consultation with VPs to perform various critical functions related to the project implementation and subsequent management o f RWSS assets.

Vi l lage (Gram) Panchayat i s a body incorporated as Local Self Government under the Constitution o f India and Bombay Vil lage Panchayat A c t o f 1958. VP i s the key village level institution for implementation o f the RWSS Project. It: (a) initiates I E C activities, ensures capacity building o f i tsel f and i t s constituent community; (b) facilitates selection o f V W S C members by the Gram Sabha and monitors V W S C activities; (c) applies fo r participation in the project and receives project funds; (d) convenes Gram Sabha meetings; (e) approves VWSC’s proposals on formation o f various sub-committees (Procurement, Finance, Audit, etc.); and (e) coordinates with ZP level agencies on a l l matters concerning implementation o f the project.

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V

Bcneficinry I.eve1 Sub r~ Conamittee Finance Sub-committee committee

'. 47 "

" ZiLn Parlshad 1

/c- District $inanrial

Management Tram (DFRZT)

1

11s ol' ZP. 1 0 w i l l hc r cct

- 4 8 -

ZPs wil l bring in additional expertise in WSS as needed f rom the private sector.

This separation o f functions i s proposed as an inter im measure. As the Water Supply Department begins to better understand i t s new role, the facilitation and appraisal roles can be combined and performed by a leaner unit. The proposed Organizational Chart and staffing plan fo r one district are given in the Project Implementation Plan.

Institutional Arrangements at State Level

The state level institutional arrangements have been designed to scale up GOM’s re fo rm pol icy with the fol lowing role:

0

0

0

0

Provide po l i cy and strategic support to districts and VPs. Steer RWSS reform implementation for effectively achieving sector objectives Provide expert advice on project implementation; Provide operational support for project management, and

0 Undertake monitoring and evaluation

State Level Advisory Committee o n Water Resources. A state level Advisory Committee o n Water Resources wil l be established to advise GOM o n pol icy issues in RWSS. The committee wi l l have the Minister o f Water Supply and Sanitation Department (WSSD) as the Chairman; Minister o f State for Water Supply and Sanitation Department as Deputy Chairman, and Principal Secretary, Water Supply and Sanitation Department as member secretary. The committee members will include outstanding national and international experts in the sector and stakeholder representatives mainly f rom community based organizations and NGOs. WSSD headed by the Secretary and assisted by the Deputy Secretary will be for initiating, synthesizing and steering re fo rm policies and their implementation in Water Supply and Sanitation Sector in the state. The Principal Secretary to the Government, WSSD, wi l l be in overall charge o f the Project. The Deputy Secretary designated as Project Director wil l be responsible for the day-to-day implementation o f the Project.

The Reform Support Team (RST) will include senior experts who wil l manage learning and knowledge management roles for shaping the Sector Policy. The constitution o f the team i s provided in PIP.

The Operations and Monitor ing Team (OMT) wil l perform project implementation and support functions including monitoring o f progress and impact. OMT will be staffed with experts having strong operational sk i l ls and f ie ld experience in engineering, ground water, community development, gender issues, health and sanitation, M&E, and capacity building.

Empowered Committee. An empowered committee with appropriate powers o f the Cabinet devolved to i t has been established to speed up the decision-making. The Principal Secretary, Finance Department, i s the Chair and the Project Director i s the Member Secretary. Decisions taken by the Empowered Committee for Project implementation do need further approvals f rom the Planning and Finance Departments.

Regional - Facilitating Team In view o f statewide coverage o f project activities and to enhance the reach and coordinating capability o f the OMT, small project facilitation teams wil l be set up in each o f six divisions in the off ice o f the Divisional Commissioner. These teams will perform extensive monitor ing activities, provide quick response and feed back to the districts, and conduct key process and progress checks at the district level. The staffing plan i s provided in PIP.

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3r V

Institutional arrangements in the Aquifer Management Pilots

BDO, D ~ , E ~ ~ ; ( w s ) , Dy.Eng;(MI),

TSG

NGO

1 member from each VP out of VWSC zp ps members representing the VPs c xecutive Body

represented in the AWMS. The rest chosen by AWMS from among themselves (minimum 12)

4-D

COMPOSITION OF A WMS & A WMA

(As Ex-officio) t I

I includedin the aquifer

Aquifer Water Management Sabha (AWMS)

4 4 4 +, I GS I

I (12 Members) I I

I GS I

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Capacity building activities Responsibility

Elected representatives md senior officials

4. Developing and Strengthening 3MT at state level

District Teams

Supply side Orientation workshops, cross visits, specialized training in functional areas Identifying national and international institutions and networking

Elected representatives and district level officials

SOs, Para- professionals, Civil Society Organizations and other service providers

B. Developing and Strengl Gram Panchayat

Gram Sabha

CBOs - Mahila Mandals, Youth Groups, SHGs

VWSC, SAC, BLSC

Orientation workshops and cross visits

1 Assessment of capacity needs * Organizing orientation workshops and cross visits

Specialized training in functional areas * Strengthening partnership and linkages with ZP, GP,

vwsc 1 Orientation workshops on Project approaches and

philosophy Cross visits

1 Identification, empanelment and certification . Assessment of capacity needs Orientation workshops on roles and responsibilities

1 Programs on facilitating and partnership s lu l l s Training programs in functional areas

2ning Demand side Orientation workshops on Project approaches and philo sop hy Cross visits

* Programs on roles and responsibilities Programs on partnership and linkages with CBOs, Gram Sabha, Women Gram Sabha, VWSC, MVWSSC, BLSC etc. Programs on good governance

Programs on constitutional importance o f Gram Sabha, calling and conducting meetings, relevance o f attendance etc. . Programs on information sharing, developing partnership, decision-making etc. - Programs on participatory techniques, probing and appraisal, consultation process, documentation etc. - Programs on inclusion, equity, transparency etc.

* Orientation workshops on Project approaches and

Programs on working in partnership with GP, VWSC etc. philosophy

Orientation workshops on Project approaches and philosophy Programs on roles and responsibilities Programs on developing partnership with GP, ZP etc. Programs on mobilization, facilitation, planning financial management, record keeping and documentation, monitoring and evaluation etc. -

* Programs on inclusion, equity, transparency etc.

The HRD specialist in OMT

The HRD specialist

Capacity Building Consortium

DFT and Capacity Building Consortium

DFT and Capacity Building Consortium

Capacity Building Fund, sos

Capacity Building Fund, sos

Capacity Building Fund, sos

SOs, Capacity Building Consortium

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Capacity Building and Scaling Up Mechanisms

The Project wi l l use NGOs, CBOs (self help groups, federation o f women organizations), Panchayats Samiti staff, and consortia comprising o f private, public and NGO sector professionals for mobil izing communities, catalyzing formation o f VWSC, and implementing various capacity building activities required by the project.

The project wou ld use fol lowing mechanisms for scaling up:

Investment in increasing the capacity o f NGOs for community mobil izat ion and facilitation. However there i s a limit to number o f good NGOs who can undertake these activities o n a scale. The focus wou ld be to develop a good mechanism to enlist and monitor their qual i ty o f support at both state and Distr ict level. A capacity building program for NGOs wou ld be developed to enable new NGOs to participate in the project. Capacity o f existing CBOs (including SHGs and their federations) should also be developed for this purpose.

Training a group o f para professionals to take some responsibilities for facilitation, mobil izat ion and training. The project wou ld invest in developing a cadre o f para professionals to undertake support to VWSCs and VPs. The project should try to invest in leadership, technical, financial, audit and management s k i l l s for village para professionals. Ma jo r scaling up o f the program can happen through para professionals. These should be accountable to VWSCs and VPs and given performance based incentives.

VPs wou ld be encouraged to develop networks and federations wh ich could take up the responsibility o f scaling up the program. Mature VPs which have shown good performance could be rewarded and motivated by giving them a responsibility to mobilize, mentor and coach new and neighboring VPs to enable lateral spread and peer learning. Some support could be provided to VWSCs for scaling up the activities o f the project.

On the supply side, significant investments wil l be made in development o f Distr ict Facilitation Teams at ZP level. Over a period o f time, similar teams could be developed at the B lock level consisting o f B lock Level functionaries.

In terms o f technical service providers, when project achieves scale, i t wou ld be di f f icul t to continue to find technical service providers only at the ZP level. Efforts wou ld be made to locate competent NGOs with technical skil ls, engineering colleges with relevant disciplines and other private service providers and increase their abi l i ty t provide support to VWSCs in a demand driven manner. The project wou ld also invest in training of M J P and GSDA staff to become better providers o f technical options and demand driven services.

The project would invest in developing capacity o f VPs and ZPs to be better facilitators o f participatory processes and being more responsive and accountable. This i s l ikely to enable VPs to become clear channels o f scaling up o f this program.

Development o f IEC material highlighting the impact o f using these approaches and the process fol lowed wou ld enable information exchange and creating demand for these approaches.

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Expanding the choice of service providers to communities and VPs

The project envisages a process through wh ich communities wou ld be able to procure a range o f services using community contracting and procurement for implementation o f the activities identi f ied in the Vi l lage Water Management and Sanitation Plans. Developing a large poo l o f service providers who work in rural areas, are accountable to the community, are paid by the community and deliver qual i ty services i s a big challenge for the project.

The project proposes a choice o f service providers to the community and wou ld actively promote partnerships between community organizations and service providers. These are as follows:

0 Community level service providers: These include para professionals selected based o n their aptitude and pr ior experience in this area by the community. These include village men and women with experience in repairs, pumps, boring, masons, plumbers and village youth and women interested in promoting sanitation and other appropriate technologies and water quality monitoring. The project wou ld a im to create a cadre and develop significant investments in capacity building o f these para professionals so that their services are in demand beyond the project.

0 The other service providers would be CBOs l ike Mah i la mandals and Yuvak Mandals and Federations o f Self He lp Groups. Many activities involved in the implementation plans wou ld be outsourced l ike collection o f water charges, construction activities, prefabrication o f blocks etc to these groups. There are examples o f these in Maharashtra. In addition engineers (retired and young) both wou ld be also roped in as service providers for technical services and preparation o f plans and estimates.

0 In i t ia l ly these para professionals wou ld develop a market for their services in their village. Over a period o f t ime they wou ld be encouraged to work in clusters and fo rm o f an association to become local entrepreneurs over a period o f time, particularly related to O&M by taking service contacts with vwscs.

0 Public Service Providers: Although there are many agencies that are providing services to communities, most o f them are used to delivering services in a supply driven manner. The project would invest in capacity bui ld ing o f publ ic service providers to deliver services in a demand driven manner. The project i s already negotiating a partnership agreement with GSDA, the major geology and water source development and assessment agency to provide services to communities in a demand driven manner. The agency i s training i t s entire staff in participatory approaches and wou ld develop specific service delivery packages in areas o f ground water assessment, source sustainability, O&M and repair services in a participatory manner and deliver them. Similar agreements and investments in capacity building o f technical service providers in ZP, MJP and other publ ic service providers wi l l be also undertaken. It i s expected that as communities wou ld be paying for these services directly, it wi l l ho ld these service providers accountable

0 Private Service Providers: Currently the role o f private sector i s l imi ted in rural water supply schemes to suppliers o f materials l ike pipes and pumps, construction material etc. A large section o f the private sector involved in urban water supply schemes perceives rural areas as remote and r isky. The project wou ld facilitate interaction between private sector providers and communities to expose the providers to various opportunities and also appeal to the social corporate responsibility o f the private sector to be able to provide reasonable services at a reasonable cost. I t i s also cri t ical to involve the private sector to identify and pi lot technology applications in area o f metering, IT applications and distribution networks.

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0 Support Organizations including NGOs: The project envisages a number o f support organizations to provide initial limited support in social mobilization and community organization and the leave the management and implementation to the communities. The project needs to develop support organizations, which can move from village to village and are catalytic in their inputs. The project would need to orient the support organizations in this approach and also build capacity o f these agencies on technical issues including O&M and distribution, topical appraisals involving choice o f options. Investing in a technical course for SOs would be critical.

0 Other providers like Engineering Colleges and Polytechnics: The project would actively build partnerships with these institutions so that students and teachers could actively work with communities in planning and preparation o f technical plans and estimates. Maharashtra has a large network o f engineering colleges, which could become a steady source o f technical support for the communities.

0 Consortium of Capacity Building Organizations: Building o f capacity o f VPs, District Teams and VWSCs i s an ongoing task and would need to be done on a scale. VWSCs would also require a coaching and mentoring on an ongoing basis. The project i s trying to procure services o f many consortia o f NGOs and private consultants at State level and District Level for providing this support.

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Annex 2 Attachment 2

Local Government Incentive Fund

The project will support a local Government incentive Fund comprising o f (a) an Incentive Fund for Vi l lage Panchayats (VPs); and (b) an Incentive Fund for Z i l l a Parishads (ZPs).

Incentive Fund for Village Panchayats

The pi lot project wou ld make investments in using and adapting innovative approaches used in Sant Gadgebaba Abhiyan (campaign for sanitation) for stimulating VPs who have worked o n management, inclusion and good governance to participate in a development market place and show case their efforts. Based o n this competitive process, selected VPs would be provided intensive capacity building support in various areas o f their operations including participatory planning and budgeting, community organization, promotion o f self help groups, inclusive decision making, community based procurement, financial management, negotiation skil ls, and development o f community report card system to support user evaluation o f services provided by VPs and self evaluation by VPs. Funds wou ld be allocated to VPs which have shown interest in developing their capacity. Specific capacity building modules and institutional arrangements need to be developed at ZP level for providing this support. Those institutions having experience o f working with PRI institutions should be involved in the process.

V P i s also envisaged as the implementing agency for the new decentralization program o f G O M and envisages direct resource transfer to Panchayat for sixteen different types o f community infrastructure and services. The guiding principles fo r this program are very close to the proposed water supply and sanitation program. These include community level prioritization, community contribution, community management and social audit. Over a per iod o f time, the processes, institutional arrangements and rules o f the game being developed under RWSSP, are expected to influence other sectors and decentralized rural development programs proposed under the new GOM initiative.

The selection o f VPs wil l be a done through a process similar to the Sant Gadgebaba Campaign but with a focus on performance o f V P as a accountable, responsive and inclusive institution. The selection would be based on the interest o f VPs, past performance o f district under other decentralized programs. Within ZP, the selection o f VPs wou ld also be based o n some ranking process and I E C activities to stimulate competition among villagers. Those VPs which are interested in being benchmarked for performance wou ld be supported for developing a user report card to develop a base l ine o n quality o f services provided by the VP. VPs wou ld be supported through a V P Incentive Fund. A regular monitoring o f V P performance wou ld enable ascertaining the improvement in VP performance over a period o f time. The project wou ld invest in pi lot ing o f a performance rat ing system for VPs.

K e y Activities and Sequencing for VP Incentive Fund

In the first phase, the ini t ia l I E C campaign on the lines o f Sant Gadgebaba program will be launched to promote good governance and effective management in VPs in a l l nine districts being covered initially. This wil l set up a competitive and demand led process built o n the existing efforts o f VPs. These VPs can be f rom both participating in the proposed project or those f rom villages not covered by the project. The GOM’s Rural Development Department (RDD) could potentially use this methodology for a statewide campaign to promote creation o f social capital around local governance issues and build positive performance oriented incentives fo r VPs.

The second phase would involve selection o f 25 VPs in each Distr ict over a per iod o f two years. These

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VPs wou ld be provided facilitation inputs for building capacity to develop a user report card, a Panchayat Development Plan and a Vi l lage Development Plan. These services wou ld be provided by a SO designated for this purpose. Some o f the best performing and willing VPs would also be encouraged to fo rm SOs (on lines o f H i rwe Bazar) fo r being Margdarshak to other VPs (coaches and mentors). A dedicated staff member in the DFT and ZP wou ld provide the facilitation inputs. This stage wou ld also lead to development o f an operational manual for user report card for VPs and Panchayat Development Planning And Vil lage Development Plans. These manuals wou ld be made available to ZPs, VPs and MDD for use for other development programs.

In the third phase, 225 VPs wou ld be supported over a four year per iod fo r implementing the components and in i t ia l set o f activities proposed under the Panchayat Development Plan. Menu o f activities wh ich wou ld qual i fy for support would include capacity building activities for VP functionaries and other CBOs in the village, development o f financial management systems, setting up computerized and internet kiosks fo r service delivery, development o f improved service delivery systems through para-professionals, supporting ideas for revenue generation for VPs. VPs wou ld contribute 15% o f the total cost o f plans as their contribution.

In the f inal phase, documentation and learning forums wou ld be undertaken as a part o f knowledge management activities. A number of new VPs wou ld be oriented to the approach fol lowed by the 225 VPs and also provide a forum and mechanism for peer learning among VPs. At this stage, efforts wou ld be made to mainstream the approach within existing decentralization efforts in Maharashtra with MDD.

Incentive Fund for Zilla Parishad (ZP)

Currently, both pol i t ical and administrative functionaries at ZPs have become primari ly implementing agencies o f programs designed and funded by the state and the central Government. These programs are then implemented at VP level and through line agencies by ZPs, in a supply driven manner with l i t t le involvement o f VPs and village residents. Since the proposed project wou ld primari ly work through ZPs, i t i s critical to make investments in ZPs as an institution to enable them to become effective, accountable and responsive local government and contribute to effective local governance.

The p i lo t incentive fund wou ld be initiated in 9 ZPs over a three year per iod in the project districts. The lessons learnt wou ld be shared and used to initiate dialogues with both RDD and ZPs to develop a programmatic demand driven approaches in decentralization efforts ini t iated by GOM.

The p i lo t project wou ld make investments in developing a development marketplace for motivating ZPs to showcase their efforts and propose ideas for improvement o f governance using criteria related with inclusiveness, participatory decision making, effectiveness, responsiveness, transparency and accountability. Based o n this competitive process, selected ZPs wil l be provided with intensive capacity bui lding support in various areas including participatory planning and budgeting, promotion o f community organizations, community based procurement financial management and accountable service delivery and e-governance initiatives. ZPs wou ld also be enabled to develop a community and user report card to get systematic feedback f rom VPs and users o f ZP services for key development programs. This will enable ZPs to develop effective plans for institutional development o f ZPs.

The project would financially support the institution development plans developed by ZPs over a period o f two years. The project wou ld also invest in cross ZP learning and knowledge management activities to draw key lessons for other decentralization programs o f GOM. The key outcome o f the proposed p i lo t wou ld be a tested approach for institution building o f ZPs, wh ich could be scaled up and adapted in a l l districts o f Maharashtra. The project wou ld also enable ZPs to innovate and develop their o w n

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institutions in a more effective manner. I t wou ld also enable innovators within ZPs to experiment and gain more recognition for public system improvements. This wou ld also serve as an incentive for ZPs to support VPs and VWSCs in an inclusive and accountable manner.

The ZP strengthening program will include: (i) Consultancies and assistance fo r institutional restructuring and re-design; (ii) training/human resource development for planning, financial management and budgeting, monitoring, IT and providing supporting services to VPs; (iii) provision o f infrastructure, particularly for IT and consultancy support for website development; and (iv) development o f M I S Systems.

Key Activities and Sequencing for ZP Incentive Fund

In the f i rs t phase, a development marketplace will be organized to enable various district ZPs to present and show case various innovations and ideas related to improving local governance and performance as a responsive and accountable service provider. Various innovations made by ZPs in resource mobilization, participation, community procurement, financial management and e-governance wou ld be presented in a competitive market place. 9 ZPs wil l be selected through this process. The campaign wou ld be taken up over a three year period to enable building o f performance based incentives for ZPs. This methodology wi l l be shared with RRD for a possible design o f state wide campaign

The second phase wou ld involve supporting 3 ZPs every year for 3 years for capacity building support. All ZPs wou ld be provided support to develop ZP Report Card involv ing systematic feedback o n performance o f ZP by users and VPs for key development programs and services. ZPs who have shown interest in collecting feedback through user report card wou ld be also provided a fund o f about Rupees 1 m i l l i on to contract various capacity building service providers for building institutional capacity o f ZPs. ZPs wou ld be enabled to develop a ZP Improvement Plan to improve ZP performance. These wou ld be presented in an open event for peer appraisal and support.

In the third phase, ZPs wou ld be supported through an innovation fund o f up to Rupees 5 mi l l ion. M e n u o f activities needs to be developed through a participatory process. These wou ld include a combination o f process, institutional and system improvements including application o f participatory planning and budgeting in development programs implemented by ZP, e-governance initiatives, introducing community based procurement, development o f a transparent service delivery system, using para-professionals for service delivery, improvement o f financial management systems, reducing response t ime in service delivery to VPs, developing innovative O&M arrangements fo r community assets.

In the f inal phase, the documentation and learning forums wou ld be organized as part o f knowledge management activities. A learning workshop to disseminate results and efforts o f ZPs wou ld be organized to enable key decision makers in GOM to interact with innovators among ZPs. I t i s estimated that the cost o f this package will be Rs. 35-40 lakhs per ZP, making for a total project cost o f approximately Rs. 105 - 120 lakhs for the first 3 selected ZPs.

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Annex 3: Estimated Project Costs INDIA: Maharashtra Rural Water Supply and Sanitation “Jalswarajya” Project

Project Cost By Component Component A: Community Development and Infrastructure Institutional Strengthening Sector Development and Strengthening Pilot Component Unallocated Total Baseline Cost

Physical Contingencies Price Contingencies

Local Foreign I US $million US $million 171.90 I 2.10 45.70 4.30

11.25 10.00

243.15 4.10

12.50

6.30 0.20 0.25 0.00 8.85 0.00 0.00

174.00 52.00 4.50

11.50 10.00

252.00 4.10

12.50 Total Project Costs‘ 259.75 8.85 268.60

Total Financing Required 259.75 8.85 268.60

Local Foreign Total Project Cost By Category US Smillion US $million US $million

Goods Works Services Training Community GrantslSu b-projects Incremental unallocated

7.00 2.20

14.50 14.45

184.80 26.80 10.00

2.00 0.30 2.00 3.55 1 .oo 0.00 0.00

9.00 2.50

16.50 18.00

185.80 26.80 10.00

259.75 8.85 268.60 Total Financing Required 259.75 8.85 268.60

1 Total Project Costs

I Identifiable taxes and duties are 0 (US$m) and the total project cost, net o f taxes, i s 268.6 (US$m). Therefore, the project cost sharing ratio is 67.39%

o f total project cost net o f taxes.

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Annex 4: Cost Benefit Analysis Summary INDIA: Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

Costs: Entire project costs

Net Benefits:

IRR: Base Scenario

[For projects with benefits that are measured in monetary terms]

Rs 10609,352,080

Rs 4460,45 1,970

19.85 %

water consumed; value of time saved by using household toilets; health benefits; capital and O&M costs saved

I If the difference between the present value o f financial and economic flows i s large and cannot be explained by taxes and subsidies, a brief explanation o f the difference i s warranted, e.g. "The value o f financial benefits i s less than that o f economic benefits because o f controls on electricity tariffs."

Summary o f Benefits a n d Costs:

Types o f Schemes The economic analysis o f the project i s based o n a representative sample o f 20 proposed schemes and a survey o f 670 households in 5 districts. The sample schemes were selected across the f ive districts on the basis o f sources o f water supply and the types o f technology, as fol lows : Cluster 1 (Groundwater) : Hand-pumps; Cluster 2 (Groundwater) : Mini Water Supply; Cluster 3 (Groundwater) : Piped Water Supply I (less than 2000 population); Cluster 4 (Groundwater) : Piped Water Supply I1 (more than 2000 population); Cluster 5 (Surface water) : Piped Water Supply 111; Cluster 6 Tr ibal Cluster (Groundwater / Surface Water). A total o f about 3626 schemes are envisaged in the project. The project economic analysis was carried out (a) separately for each o f the six clusters, and (b) for the project as a whole, using the l ikely scheme mix and phasing proposed in the project.

Pro jec t Benefi ts The proposed project would be just i f ied on the basis o f direct benefits to about 7.5 m i l l i on rural inhabitants, rising to about 10 m i l l i on at the end o f the project per iod (population i s assumed to grow at 1.8 % per annum). The typical project benefits envisaged are: t ime savings in collecting water, increased availability o f safe water, health benefits f rom access to cleaner water, time savings f rom using household latrines, improved sanitation knowledge and better sanitation practices, environmental benefits

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and strengthened community, panchayat and state institutions. In addition, the demand driven project wou ld enable a more sustainable approach than has been possible through top-down public programs. The benefits that have been quantified are:

Value o f time saved in water collection; * Value o f incremental increase in water supply; Value o f time saved in defecation by using household toilets;

* Value o f health benefits f rom reduction in gastroenteritis, diarrhoea (quantified as water supply benefits) and malaria (quantified as environmental sanitation benefits); . Value o f recurring and capital cost saved (costs incurred to maintain the existing supply o f water in a without project scenario); . Income multipliers o f micro credit disbursement.

li) Value of Time Saved : Time has been valued at the opportunity cost o f labour using the minimum wage rate for agricultural labour at Rs.47lday (Government Regulation 2002), and a real increase o f 2.94 percent per annum (India Development Report, 2000). Based o n the household survey and discussions with GOM officials, it i s assumed that a person i s gainfully employed for 250 days in a year, hence a conversion factor o f 0.68 i.e. (2501365) has been applied in the calculations. I t i s also assumed that a person works for 8 h r s in a day. Further, the t ime saved i s valued at 52% o f the wages earned (ADB Handbook for the Economic Analysis o f Water Supply Projects, 1999). A standard conversion factor o f 0.9 i s applied to arrive at the economic value o f t ime saved in border prices. A sensitivity analysis o f value o f time saved has also been carried out, using the average market wage rate o f women at Rs 35 (household survey).

lii) Value o f Incremental Water Consumed :The incremental water i s the increased water consumed due to the increased availability and ease o f access as compared to the current water supply. The incremental water consumption i s estimated as the difference between the designed supply (40 lpcd for a l l schemes) and present water consumption, after the schemes are operational. The system i s designed to serve 40 lpcd at the end o f 20 years, hence the incremental water availability wi l l be more init ial ly, and declines gradually. In the absence o f a proper demand curve (willingness to pay approach), the incremental water i s valued at the average o f current costs (equal to t ime and other costs incurred to maintain present water supply) and future costs (capital costs amortized at 10 % plus O&M costs) o f water supply (Asian Development Bank Handbook o n the Economic Analysis o f Water Supply Projects, 1999).

(iii) Value of time saved in using household latrines / sanitary complexes for women: The project envisages covering 10% households in the project area with individual household latrines costing Rs 2000 each. Based on survey information, the average t ime currently spent by a l l members o f a household in using an open defecation place i s 2.28 hrs per day. This time will be saved if individual household latrines are provided. The time saved o n defecation i s considered only for the adult population between age 15-55 years (about 2.5 persons per households), fo r 10 % households under the project. In addition, i t i s assumed that 80% o f the women (excluding the 10% opting for household toilets and those who already have household toilets) wou ld avai l o f the sanitary complex for women. I t i s assumed that 50% o f their current t ime spent o n open defecation, will be saved. Time has been valued in the same way as time saved for water supply (at 52% o f wage rate o f Rs. 47, 8 h r s per day, 250 days o f gainful employment).

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[iv) Value of health benefits from reduction in diarrhoea and gastroenteritis diseases I t i s widely recognized that provision o f safe water supply coupled with sanitation facilities will give considerable health benefits, especially in the reduction o f water borne diseases. These health benefits are captured fo r reduction in diarrhoea and gastro-enteritis (reduction in malaria i s considered as a benefit f r om environmental sanitation activities and i s estimated separately). The reduction in diarrhoeal diseases i s taken as 20.8% and reduction in gastroenteritis as 39.0 % [Jha, Esrey, etc. and survey information]. The three health benefits quantified are (a) reduction in expenditure on medication, (b) reduction in Disabi l i ty Adjusted L i f e Years (DALYs); and (c) reduction in indirect man-days lost to the carer, due to reduction in incidence o f disease. The reduction in incidence o f diarrhoea i s taken as 20.8% due to water supply alone and 37.5% due to water supply and sanitation. The reduction in incidence o f gastroenteritis i s taken as 39.0% due to improved water supply and sanitation.

The expenditure incurred on medication (includes medicines and consultation) i s taken f rom actuals f rom the survey (average o f ‘per incidence expenditure’). The benefit i s calculated as the reduced expenditure o n medication due to the reduced incidence in disease. Reduction in DALYs i s estimated for reduction in diarrhoeal diseases (9.6% o f total DALYs i s due to diarrhoeal diseases, Wor ld Development Report, 1993, Wor ld Development Report, 2001), and valued at the opportunity cost o f labour. The reduction in indirect man-days lost for a carer, i s taken as 3 days per incidence for gastroenteritis and 1 day per incidence for diarrhoea, valued at the opportunity cost o f labour.

[v) Value of Health Benefits due to Reduction in Malaria Health benefits due to improved Environmental Sanitation wi l l reduce incidence o f malaria and have been quantified as (a) reduction in expenditure o n medication; (b) reduction in DALYs; and (c) reduction in indirect man-days lost due to the reduction in incidence o f Malaria. The reduction in incidence o f Malar ia i s taken as 37.5% due to improved sanitation.

[vi) Value o f capital and O&M Cost Saved : Capital and O&M costs being incurred on the present schemes wou ld be saved, as these costs wou ld have been incurred if the present schemes were to continue. The O&M cost saved i s taken as the actual O&M cost incurred o n technical operation o f the project in each village (including administration costs). Similarly, if the existing system was to continue, replacement o f existing schemes wil l have to be undertaken to cater to the requirements o f increased population and failure o f schemes. The saving o n this cost i s taken as the savings in capital costs. This has been valued, using the least cost option o f hand pumps lasting fo r 8-10 years, hence the benefits are considered in the 4th and 14th year. Takmg the cost o f one hand pump as Rs 35000 (PPMU cost), the investment saved i s Rs 728 per household plus 34% hardware costs, towards design and implementation charges by MJP. This i s a very conservative estimate o f the capital costs saved.

[vii) Income multiplier o f micro credit disbursement : About Rs. 40,000 per GP has been earmarked as micro credit for women, fo r promoting entrepreneurial activities to increase income and empower women. The f i rs t year o f the project will focus o n capacity building and training. The micro credit disbursement wi l l start f rom the 2nd year, till the 6th year. I t i s assumed that the benefit wi l l start f low ing in after one year f rom the year o f disbursement, thus the i n f l ow o f benefit i s taken f rom the 3rd year to the 7th year. The income mult ipl ier o f the micro credit i s assumed to be 1.5.

Project Costs

All costs, estimated for the project are expressed in constant 2003 prices, net o f taxes. The average water supply costs are Rs 3678lhh (range Rs 505-6562), average source sustainability costs are Rs 4401hh. The average environmental sanitation (including drains, compost pits, school toilets, women’s sanitary

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complexes) costs are Rs 1320/hh; average latrine costs are Rs 200/hh (Rs 2000 per household latrine, 10% coverage); and software costs are Rs 3330/hh. The total investment cost works out to be 8968/hh. Out o f this, the costs for individual house connection and household sanitation are over and above the project costs. A wide variation in the cost i s expected across villages, depending o n the hydrogeological conditions, severity o f the water quality problem, number o f households in the village, extent o f augmentation o f existing water supply schemes, etc. O&M costs depend on the type o f schemes and vary f rom Rs.482-1727/hh/yr for water supply and source sustainability (Rs.l76/hh/yr fo r Cluster 1, i.e Hand Pump Scheme). The above costs are extrapolated fo r the entire project, based o n the fol lowing phasing o f schemes: 3% o f schemes expected in the f i rs t year, 12% in the second year, 32% in the third year, 36% in the fourth year, and 17% in the fifth year. The software costs (including IEC, village development, institutional development and sector strengthening) are extrapolated, based o n projections for four years: 8% GPs covered in the f irst year, 31% in the second year, 41% in the third year and 20% in the fourth year. The overall cost benefit analysis i s based o n the phasing and mix o f schemes as given above.

Cost Benef i t Analysis and ERR

Costs and benefits are expressed in border prices (using standard conversion factor, SCF o f 0.9 to a l l domestic expenditures and benefits) and have been projected over a 20 year period, f rom the f i r s t year o f the project. Switching values have been calculated at 12% opportunity cost o f capital in India. The economic rate o f return i s estimated to be 19.85% for the whole project (all costs and benefits). I t i s 20.8 1% if only water supply and source sustainability costs and benefits are considered. ERR, B/C ratios and switching values have been calculated for each type o f cluster and scheme (details in Economic Analysis Report). The rates o f return in a l l cases understate the true ERR since there i s n o quantification o f benefits o f drains, compost pits, source sustainability measures, habitation improvements, community development etc.

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Results and Sensitivity Analysis

ERR of Water Supply and Source Sustainability only ERR of Environmental and Household Sanitation only

20.81% 2 2.4 0 Yo

42% Increase in Cost (Switching Value) 12%

122.1% Combined Increase in Costs &Decrease in Benefits (Water Supply I 12 % /

20% Decrease in T o t a l Bene f i t s 14.7 7 Yo

* In a supply dr iven scenario, the cost wou ld have increased by 24% due to MJP charges; the project l i f e wou ld have been reduced t o 10 years and no software costs wou ld have been spent.

29.6% Decrease in Benefits (Switching Value)

** Gender Benefits t o women (10 years and above) fo r t ime savings o n water collection, t ime savings o n defecation, incremental water available fo r women, mic ro credit and health benefits.

12 Yo

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C o m b i n e d 10% Increase in T o t a l Costs & 10% Decrease in T o t a l Bene f i t s 15.26% 17.3% Combined Increase in Costs &Decrease in Benefits (Switching Value) 10% Increase in W a t e r Supp ly Costs & 10% Decrease in W a t e r S u p p l y Bene f i t s

1 2 Yo 16.2 5 Yo

20% Reduc t ion in T i m e Sav ings f r o m W a t e r Co l l ec t i on & De feca t ion 16.6 5 Yo

M a i n Assumptions: Time has been valued at the opportunity cost o f labour using the minimum wage rate for agricultural labour at Rs.47/day (Government Regulation 2002), and a real increase o f 2.94 percent per annum (India Development Report, 2000). It i s assumed that a person i s gainful ly employed for 250 days in a year, hence a conversion factor o f 0.68 i.e. (2501365) has been applied in the calculations. I t i s also assumed that a person works for 8 h r s in a day. Further, the t ime saved i s valued at 52% o f the wages earned (ADB Handbook for the Economic Analysis o f Water Supply Projects, 1999). A standard conversion factor o f 0.9 i s applied to arrive at the economic value o f t ime saved in border prices. A sensitivity analysis o f value o f t ime saved has also been carried out, using the average market wage rate o f women at Rs 35 (household survey).

Sensitivity analysis / Switching values o f critical items: Sensitivity analysis, based on assessed risks, indicate the project i s able to absorb substantial negative impacts, yet generate positive ERRS. For example, the project can sustain: 0 Significant increase in costs o r decrease in benefits: an increase in costs by 20% or a decrease in benefits by 20%, or a combined 17% increase in costs and 17 % reduction in benefits. 0 Implementation delays wou ld delay project benefits. If benefits are delayed by three years, the ERR falls to 17.30 YO. 0 Reduction in time savings f rom water collection and household latrines. If t ime savings f rom water collection and private toilets were reduced by 30%, the project ERR wil l fa l l to 14.89%. 0 Increase in the number o f house connections. The project ERR i s only moderately sensitive to this variable. 60% households opting for house connections gives a positive ERR o f about 20.96%. 0 No health benefits. Even if health benefits are no t quantified, the project i s s t i l l feasible with an ERR o f 18.77%. 0 Complete failure o f a l l schemes in year 10 makes the project non feasible. 0 An alternate supply driven scenario i s not feasible.

Additional Scenarios

In addition to the base case scenario and sensitivity analysis, the fo l lowing two additional scenarios have been especially considered.

(i) Benefits to women folks (Gender Benefits) The responsibility for water collection, which takes considerable effort, labour and time falls on women folks. The project focuses on empowering women and assuring involvement o f women in a l l aspects o f the project. The benefits accruing especially to women are captured in a separate scenario (it i s no t included in the base case, to avoid double counting) : 0 t ime savings in water collection; 0 time savings due to use o f household toilets /women complexes; 0 availability o f incremental water to females above 10 years o f age; 0 health benefits due to reduced diarrhoea, gastro-enteritis and malaria. [benefits due to reduced expenditure o n medicine i s captured for women above 10 years; reduction in DALYs for women i s 51.34% o f the total DALYs, for diarrhoeal disease and 49.95% o f the total DALYs for malaria; 0 micro credit schemes (small loans and savings facilities) : Rs 40,000 per GP has been earmarked for reduction o f poverty, and empowerment o f women. [the micro credit disbursement will be 20% each year (3rd year to 7th year o f the project). Based on market information, the income mult ipl ier o f this micro credit i s assumed to be 1.51.

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The ERR o f the gender scenario works out to be 13.24% as against the total ERR o f 19.85% (when a l l benefits are considered), showing that a substantial amount o f benefits are actually accruing to women. In addition to the above quantified benefits, many other benefits to women have not been quantified, such as reducing workload and physical strain; empowering, sensitization and capacity building o f women, etc.

(ii) Alternate Supply Dr iven Scenario The pr ime reason for the failure o f the traditional supply driven water supply schemes has been the lack o f people’s participation and proper institutional arrangements for managing the schemes. Also, there has been a failure to manage cost recovery and provide t imely O&M, in terms o f finances and materials to sustain the project. The proposed project entails institutional strengthening and capacity building which i s expected to result in significant impacts, especially in ensuring the sustainability o f the schemes. However, to compare the proposed project with the traditional supply driven projects, the fol lowing alternate scenario i s considered : 0 The l i fe expectancy o f the proposed project reduces to 10 years (as i s commonly observed in traditional supply driven projects). 0 Addit ional costs o f construction incurred in traditional supply driven projects due to MJP charges, increasing the project costs by approximately 24%. 0 Reduced software costs, normally not incurred in supply driven projects. In the above supply driven scenario, the project i s found to be non-viable.

Thus, the proposed project i s economically feasible and wil l provide r i ch benefits to the rural population.

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Annex 5: Financial Summary INDIA: Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

Years Ending July - June 30,2004

I Year1 I Year2 I Year3 I Year4 I Year5 I Year6 I Year7 Total Financing Required

Project Costs Investment Costs 7.7 19.4 58.7 79.0 64.3 10.5 0.0 Recurrent Costs 1.9 5.6 6.5 5.6 5.7 3.7 0.0

Total Project Costs 9.6 25.0 65.2 84.6 70.0 14.2 0.0 Total Financing 9.6 25.0 65.2 84.6 70.0 14.2 0.0

I B RDll DA 7.0 15.0 40.0 60.0 50.0 9.0 0.0 Government 2.5 8.0 20.3 18.6 19.0 5.2 0.0

Centra I 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0

Co-financiers 0.0 User FeeslBeneficiaries 0.1 2.0 4.9 6.0 1 .o 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 9.6 25.0 65.2 84.6 70.0 14.2 0.0

Main assumptions:

Financing

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Annex 6(A): Procurement Arrangements INDIA: Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

Procurement A. Procurement Implementation Capacity

Maharashtra has had a number o f IDA funded projects over the years both under IBRD loans and IDA credits including the Maharashtra Rural Water Supply Project wh ich was closed in June 1998. The state thus has extensive experience o f IDA procurement and consultant guidelines. A Country Procurement Assessment Review (CPAR) was carried out in 2000. A procurement review for the state o f Maharashtra has been carried out, and the report was completed in March 2003. The project wou ld be implemented through Distr ict Local Governments (ZPs), and the state level agency - Jalswarajya off ice - wou ld be responsible for overall coordination and monitoring. In order to plan and implement several procurement activities during the f i r s t two years o f the project, the Project Director wou ld supplement the existing capacity at the state level with a consultant to help the project team in preparation o f the procurement plans, documents and guideitrain the Distr ict Teams who do not have pr ior experience with IDA procurement, and monitoring o f procurement arrangements at various levels.

Community Procurement. Most o f the procurement (works, goods and services) in the project wi l l be done at the V P level. Under the project, eligible communities wil l undertake repairirehabilitation or construction o f new drinking water schemes serving their villagelcommunity through their o w n efforts based on a demand driven approach, hire support organizations and mobil ize training fo r women's groups, various functional and management committees and VPs. The Community Operational Manual (in local language) gives detailed guidelines, procedures, rules and methods o f community procurement.

B. Procurement R i s k s and Suggested Remedies

Demand based approach and community contracting - assisted but not driven by central or local government - i s a relatively new approach to project implementation. There i s a potential risk f rom a large volume o f contracting at the community level. Therefore, capacity building activities need to be initiated, through an Information, Education and Communication (IEC) campaign in each district we l l before communities organize themselves into VWSCs and plan/ prepare implementation o f their schemes. There i s also need for simplifying procedures and processes o f various procurement and a strong monitoring mechanism including social audits wh ich considerably reduce the inherent risk. These project wou ld address these risks through the fol lowing mit igation measures:

The draft procurement plan was finalized before negotiations and an updated procurement plan wi l l be required fo r each new fiscal year before disbursement can be initiated. Procurement supervision will be conducted every six months and the procurement plan wi l l be monitored o n an on-going basis. T o enhance procurement capacity o f the village community, procurement training wil l be conducted as part o f the capacity building for project management in a l l participating VPs. A Community Operational Manual (COM) has been developed during preparation. C O M contains a section o n procurement wh ich covers procurement procedures, procurement methods, and reporting requirements.These procurement rules and procedures wou ld be disseminated early o n through a well devised IEC. The manual wi l l be reviewed every six months and revisedrefined in consultation with IDA. The project wou ld develop a district-wise roster o f support organizations and service providers

(consisting essentially o f NGOs, SOs or individuals with some social mobil izat ion experience and 0

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technical know-how) who are interested in providing the advisory and technical support to the communities to help them make an informed choice. The project wi l l develop a strong and continuous monitoring mechanism, including social audit. The monitoring will be done at various levels -state level Operations Monitor ing Team (OMT) and Hub Team, Distr ict Facilitation Team (DFT) and the village level monitoring. In addition, extemal consultants wil l be hired to carry out process and technical monitoring (including procurement and financial management) periodically.

0

C. Schedule o f Activities and Procurement Plans:

The project would cover 2800 VPs (including tr ibal padas) spread over 26 districts, roughly about 110 VPs in each district. GOM has already initiated implementation in 30 VPs in three p i lo t districts during project preparation to test the approach and various processes and procedures at the community level. The f i r s t year plan will include nine districts, and remaining 17 wi l l be included in Year 2.

D. Procurement Arrangements

All project activities to be financed under the Credit wou ld be procured in accordance with the Bank's Guidelines for Procurement o f Goods, Works (January 1995, revised January and August 1996, September 1997, January 1999) and Consultancy Guidelines (January 1997, revised in September 1997, January 1999, and M a y 2002) for hiring consultant services (including NGO services). All c i v i l works, goods and services wou ld be procured using India specific Bank's model documents as we l l as the formats o f the community contracts specifically approved fo r the project.

Procurement at the village/community level wi l l be guided by the Community Participation in Procurement (CPP- Para. 3.15 of the Procurement Guidelines). VPs wil l directly enter into contracts with private contractors, NGOs, consultants, government agencies, and wi l l be guided by the principles o f efficiency, equal opportunity and transparency o f the process. The VPs/communities wi l l manage and implement the water supply and sanitation activities, hire skilled contractors and purchase materials local ly to ensure minimal delays and reduce inefficiencies due to loss during transport and storage. Standard price l i s t s (Jal Swaraj Schedule o f Rates) wi l l be developed, maintained and updated regularly under the guidance o f the district team, and wil l used by the VP/communities as standards rates to guide their procurement.

Specific procurement arrangements summarized in Table A are as follows:

Village/Community Subproject Grants (US$ 185.8 million): The project components will finance subprojects which are demand driven in nature, making i t dif f icult to determine ex-ante what i s to be procured. Grant funds f rom the project can be used for services, goods, training, and works. The VP/communities may obtain technical, management support and advice f rom the Water Supply Department at the district or decide to hire local consultant/NGOs for these services. The village/community subprojects wou ld include: water rejuvenatiodsource strengthening measures, rehabilitation and construction o f water supply schemes, community and environmental sanitation infrastructure, aquifer pilot, hiring of services for training and capacity building o f VPs and various village committees, women empowerment activities, and local govemments. The village subprojects would also include hiring of support organizations to help the VPs and communities prepare and implement the Vi l lage Ac t ion Plans. The average value o f each subproject would b e about US$lO,OOO and maximum would not exceed US$50,000.

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I t i s expected that o f approximately 2800 works [drinking water as w e l l as sanitatioddrainagelsource strengthening] there wi l l be some multi-village or large single village schemes where the works component (excluding pumps and motors) i s estimated to cost the equivalent o f US$ 50,000 or more. These works shall be implemented through local contractors using NCB procedures and the Bank's India specific model documents for the procurement o f small works.

A bulk (estimated at 2500) o f project works procurement wou ld comprise contracts estimated to cost less than the equivalent o f US$ 50,000. If the community elects no t to carry out the work itself, then these works may be procured through local shopping procedures i.e. o n the basis o f comparison o f price quotations obtained f rom at least three prequalified contractors that are eligible as per the Guidelines, or f rom registered and experienced NGOs and self-help groups.

The f i rs t two contracts for goods and works under sub-projects, regardless o f district and value, and a l l contracts with estimated value o f US$ 250,000 or above shall be subject to IDA'S pr ior review. The RSPMU wil l review the first two contracts for goods and works under subprojects in each district regardless o f value. The agreed procedures for community procurement are as follows:

Works: Most works undertaken in this project wi l l use community participation to mobil ize and pay labor. A small number o f works may need to be procured through small works. The fol lowing methods will be used: (a) direct contracting with registered NGOs or local community organizations such as "Mahil la Mandals" or "Yuvak Mandals"; (b) lump-sum fixed price contracts with quali f ied contractors awarded o n the basis o f quotations obtained f rom at least 3 qual i f ied domestic contractors in response to a wr i t ten invitation; and (c) community carrying out the works themselves and taking up technicallmanagerial assistance f rom district teams or support organizations or hiring services o f individual experts.

Goods: The goods estimated to cost less than US$500 per contract upto an aggregate amount not to exceed US$lO,OOO may be procured through Direct Contracting procedures. Goods estimated to cost less than US$30,000 per contract wou ld be procured through shopping procedures o n the basis o f at least 3 quotations.

0 Services: The services estimated to cost less than equivalent o f US$ lO,OOO may be hired by inviting proposals f rom three or more service providers o r technical consultants or based on consultant's qualification. Any service contracts costing more than US$lO,OOO but less than US$50,000 should be invi ted through newspaper advertizement.

Small Works (Estimated total cost $2.5 million): Small works estimated to cost less than $50,000 per contract up to an aggregate value o f U S $ 2.5 m i l l i on wi l l be procured under lump sum , f ixed price contracts awarded o n the basis o f quotations obtained f rom three (3) qual i f ied domestic contractors in response to a writ ten invitation. The invitat ion shall include a detailed description o f the works, and the award should be made to the lowest bidder.

Goods (Estimated total cost $9.0 million): Goods wou ld be procured fol lowing Bank Procurement Guidelines (January 1995, revised January and August 1996, September 1997 and January 1999). The fol lowing procurement methods wou ld be fol lowed

National Competitive Bidding (NCB): Contracts estimated to cost more than US$50,000, but less than the equivalent o f US$ 200,000 per contract upto an aggregate value o f S$3.5 m i l l i on wou ld be procured fol lowing the N C B procedures in accordance with the provisions o f the o f the para 3.3 and 3.4 o f the

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Guidelines. The packages consisting of: computers and related off ice equipment, networking and website development; other off ice equipment, dissemination equipment, furniture, water quality testing k i t s , printing materials and vehicles wou ld be procured fol lowing the N C B procedures. All N C B contracts to be financed f rom the proceeds o f the Credit shall fo l low the fol lowing procedures:

(i) Only the model bidding documents for N C B agreed with the Government o f India Task Force, as amended f rom t ime to- time, shall be used for bidding.

(ii) Invitations to bid shall be advertised in at least one widely circulated national daily newspaper, at least 30 days pr ior to the deadline for the submission o f bids.

(iii) N o special preference wil l be accorded to any bidder, either fo r price or for any other t e r m s and conditions, when competing with foreign bidders, state-owned enterprises, small-scale enterprises or enterprises f rom any given State.

(iv) Except with the pr ior concurrence o f IDA, there shall be n o negotiation o f price with the bidders, even with the lowest evaluated bidder.

(v) Extension o f bid val idity shall not be allowed without the pr ior concurrence o f IDA: (a) for the f i rs t request for extension if it i s longer than eight weeks; and (b) fo r a l l subsequent requests for extension irrespective o f the period (such concurrence wil l be considered by IDA only in cases o f Force Majeure and circumstances beyond the control o f the Purchaser or Employer).

(vi) Re-bidding shall no t be carried out without the pr ior concurrence o f IDA. The system o f rejecting bids outside a pre-determined margin or ‘bracket‘ o f prices shall not be used.

(vii) Rate contracts entered into by DGS&D will no t be acceptable as a substitute for N C B procedures. Such contracts wil l be acceptable for any procurement under National Shopping procedures.

(viii) The two-or-three envelope system will not be used.

ICB: through I C B procedures. Domestic preference will be available in ICB.

All other contracts estimated to cost the equivalent o f US$ 200,000 or more shall be procured

National Shopping: Goods (including vehicles) estimated to cost less than US$50,000 per contract wou ld be procured by the various implementing agencies in small lots using National Shopping procedures in accordance with paragraphs 3.5 and 3.6 o f the Guidelines, upto an aggregate amount o f US$ 5.5 mi l l ion and a l l contracts whose estimated value exceeds the equivalent o f US$200,000 shall be subject to the Bank’s pr ior review.

Training and Consultancies (US$34.5 Million):

The technical assistance and consultancy services, includes the hiring o f NGO services, non government members o f Distr ict Teams and Jal Swaraja off ice (state level), and Capacity Building consortia. Consultants shall be required at a l l the three levels o f the project for awareness campaigns, monitoring, training, conducting studies and providing support to communities. Consultancies, training and studies wou ld be contracted on terms and conditions wh ich are in accordance with IDA “Guidelines: Selection and Employment o f Consultants by W o r l d Bank Borrowers” published by the Bank in January 1997 and revised in September 1997, January 1999 and M a y 2002 (the Consultant Guidelines), paragraph 1 o f Appendix 1 thereto, Appendix 2 thereto and the fol lowing provisions:

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With respect to each contract wi th consultancy f i r m s and NGOs estimated to cost the equivalent o f US$ 200,000 or more, the procedures set forth in paragraphs 2, 3 and 5 o f Appendix 1 to the Consultancy Guidelines shall apply.

5. Community Su bprojectslGran ts Incremental Operating Cost

Total

With respect to the f i rs t two contracts per district regardless o f value, and each contract for individual consultants employed in accordance with Section V o f the Guidelines and estimated to cost the equivalent o f US$ 25,000 or more, the qualifications, experience, TOR and terms o f employment o f the consultant shall be furnished to the World Bank/IDA for i t s prior review and approval

0.00 0.00 185.80 0.00 185.80

0.00 0.00 26.80 0.00 26.80 (0.00) (0.00) (8.75) (0.00) (8.75) 0.00 3.50 265.10 0.00 268.60

(0.00) (2.50) (178.50) (0.00) ( 1 8 1 .OO)

(0.00) (0.00) (122.00) (0.00) (122.00)

The shortlist for contracts estimated to cost below US$ 400,000 may comprise entirely o f national consultants.

Procurement Plan

The procurement plan for the project (for the f i rs t two years), providing a timeline for each step o f the procurement process, has been agreed during the negotiations. The procurement plan w i l l be finalized as part o f the Project Implementation Plan, for f i rs t two years. During the l i f e o f the project, annual procurement plans, acceptable to IDA, will be required starting March 2004, and thereafter until project completion, as a condition for commencing implementation o f each year o f the project.

Procurement methods (Table'A)

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Table A I : Consultant Selection Arrangements (optional) (US$ million equivalent)

Selection Method Consultant Services

Expenditure Category QCBS QBS SFB LCS CQ Other N.B.F. Total COS^ A. Firms

B. Individuals

Total

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9.00 12.00 1.00 ' 1.00 5.00 3.50 0.00 31.50 (8.90) (11.30) (0.90) (0.80) (4.30) (2.90) (0.00) (29.10) 0.00 0.00 0.00 0.00 2.50 0.50 0.00 3.00

(0.00) (0.00) (0.00) (0.00) (2.40) (0.50) (0.00) (2.90) 9.00 12.00 1.00 1.00 7.50 4.00 0.00 34.50

(8.90) (1 1.30) (0.90) (0.80) (6.70) (3.40) (0.00) (32.00)

Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review'

2. Goods >50 to <200 >50

3. Services >200,000 per contract Consulting Services by >50and>200 NGOs services, Training by firms

Consulting services by individuals >50,000

Subproject Grants

Procurement Method

National Shopping (at least 3 quotations)

NCB Shopping

QCBS or QBS CQ, sole source or any

other method as per guidelines

CQ, sole source

quotation, direct contracting, community

participation

Contracts Subject to Prior Review (US$ millions)

First two and all contracts above US$250,000

First two contracts above JS$50,000 and all contract

above US$200,000 Prior review

TORS and the short-list

Post review

Prior Review

post award review First two contracts

Total value of contracts subject to prior review: Less than 5% o f contracts. Estimated number o f contracts subject to prior review i s about 8 for goods and 12 for consultants.

Overall Procurement Risk Assessment: Average Frequency of procurement supervision missions proposed: One every six months

(includes special procurement supervision for post-review/audits)

I\ Thresholds generally differ by country and project. Consult "Assessment o f Agency's Capacity to Implement Procurement" and contact the Regional Procurement Adviser for guidance.

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Annex 6(B): Financial Management and Disbursement Arrangements INDIA: Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

Financial Management

1. Summary o f the Financial Management Assessment

Countrv Issues: The fol lowing country issues wi l l apply:

(a) The issue of availability o f funds on a t imely basis to applies to the project to the extent that this i s a state sector project and that state sector projects are generally more vulnerable to this problem. GOM has demonstrated a high level o f commitment to the project and has assured IDA that counterpart funding for the project will be accorded the highest priority.

(b) Quality and timeliness o f audit reports and responselfollow-up o f audit findings has been noted in many states/administrations. T o mitigate this risk, GOM has sought to include the C A G in the preparation process and separate TORS for the project audit are being agreed. The TORS will cover the requirement o f CAG's certification and report on the financial statements o f the project and wil l no t be limited to SOEs.

(c) accounting system will be capable o f producing these statements.

Formats o f Project Financial Statements have been agreed with GOM and it i s expected that the

(d) At the country level, delays in submitting withdrawal applications has been an area o f concem. However, the Financial management system that has been designed fo r the project wou ld al low GOM to submit monthly reimbursement claims on a t imely basis. The f i r s t Maharashtra RWSS project financed by IDA closed in 1997, and there are no specific references to delayed claims in the ICR.

Strenvths and Weaknesses

Strengths: The project has the fol lowing strengths in the area o f financial management:

(i) A project financial management manual fo r the project has been prepared. The project wil l prepare financial management reports f rom the start.

(ii) A highly committed Team i s in place at the state level and key finance staff have been associated with the development o f the financial management system for the project.

(iii) funds are used for intended purposes;

Adequate institutional arrangements have been put in place at the village level to ensure that

(iv) GOM has demonstrated a high level o f commitment to the project and during discussions o n the fund f low processes assured the Bank that the releases o f funds during the l i f e o f the project will be accorded the highest priority.

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Significant weaknesses

Significant weaknesses The accounting system in place primari ly focuses o n book keeping and not on financial management

Resolution Financial management manual has been developed fo r the project which focuses

The capacity o f GPs for book-keeping and accounting and financial management i s very limited. They wi l l need support in maintaining the books o f account.

One o f the critical functions o f the project wi l l be to enhance capacity o f the community in bookkeeping and accounting. Training o n accounting and book keeping wi l l be provided to the V W S C by the DFT & SOs. If necessary sk i l ls are not available at the village level, a suitable person can be identi f ied and trained as a para-professional. As an alternate option, a cadre o f self-employed accountants wil l be developed and encouraged to set up accounting practices at the village level, whose services can be availed by the vwsc.

Funds Flow

The envisaged fund f l ow for the Project i s as follows:.

State Level: GOM will transfer the funds based o n the annual work plans to the P L account maintained by the OMT in installments. Specific commitment i s being sought f rom GOM to release the funding requirements for the two quarters at the start o f each year. F rom the P L account funds required for state level Project expenditure wi l l be met. The funds for the district level operations wi l l be transferred to the ZP f rom the PL account.

Zilla Parishad Level: A separate bank account in a scheduled bank wi l l be maintained at the ZP level, which wil l be operated by the Distr ict Team in ZP under single o r j o in t signatures, depending upon the amount o f transaction. The officers may be Chief Executive Officer, Addit ional Chief Executive Officer, Senior Accounts Officers o f the Distr ict Financial Management Team or other officers in WSSD in ZP as approved by OMT. The expenses for the district level operations and expenses o f the DFT, DAMT, DFMT and the Administration Unit wil l be met f rom this account. As per the approved village level action plan and agreed milestones therein, funds wil l be transferred f rom this account to the Gram Panchayat. T o ensure that the releases to the VPs are timely, benchmarks have been established and these wil l be monitored to identi fy exceptions through the financial and other M I S reports. Compliance with the benchmarks will be considered as an important indicator for ZPs el igibi l i ty to the ‘Incentive Fund’.

Village Panchayat Level: A dedicated account wi l l be opened at the V P level, to receive funds f rom the ZP and also to credit capital contribution by the community. This account wi l l be operated on behalf o f VP by V W S C members under the jo in t signature o f at least two off icer bearers o f Vi l lage WSSC, nominated for the purpose by the Gram Sabha. At least one signatory shall be a woman.

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f

1

i I

. I I

I t

s I

Financial Management Framework

At the state and district levels, the project wil l maintain accounts using the present Government accounting system, with additional accounting and reporting processes to classify project expenditures as required by project components/activities and disbursement categories and prepare monthly/quarterly /annual reports required for project management. The accounting and reporting system will be manual in the beginning and will move into a computerized environment during the l i fe o f the project.

State Level: The Operations and Monitor ing Team (OMT) wil l continue to operate the present book keeping arrangements as per the Government accounting mechanism. However, the accounts wi l l be classified and summarized by additional accounting heads to track Project component wise expenses, disbursement categories and procurement categories. The OMT wil l be responsible for compil ing the financial reports and claims for fund release to the state, Government o f Maharashtra as we l l as to the Bank. The Reform Support Team (RST) wi l l provide overall pol icy level support in developing financial management policies and bring in lessons learnt.

Zilla Parishad Level: A dedicated Distr ict Financial Management Team (DFMT) set up at district level, under the Chief Executive Officer/Additional Chief Executive Officer, ZP as the Distr ict Project Director and Distr ict Project Coordinator wil l manage the project funds and will be responsible fo r a l l expenditures at the Distr ict level. This wil l include meeting the expenditures o f the Distr ict Facilitation Teams (DFT) and Distr ict Monitor ing & Appraisal Teams (DMAT). The DFMT wil l also ensure t imely releases o f the installments to the VPs against agreed milestones in sub project contracts o n advice by the DMAT. The DFMT will submit monthly reports o f funds to the State level OMT, providing details of fund flow, bank reconciliation, expenditures by Project activities, expenditure by disbursement categories and procurement methods, details of approved village level actions plans, releases made and beneficiary contributions accounted for.

The dedicated team for facilitating, coordinating and guiding community development and technical activities i s called the Distr ict Facilitation Team (DFT). An accountant with adequate ski l ls and experience in community accounting and capacity building wil l be an integral part o f the DFT and wil l be responsible for VP level facilitation and training functions.

The Distr ict Appraisal & Monitor ing Team (DAMT) sufficiently f i re walled f rom the facilitating team wil l function as the “guardian of rules” to ensure that the Project addresses clearly the community priorities, fo l low the principles and guidelines for Project implementation and the technical and financial viabi l i ty o f the proposed schemes. The Executive Engineer, Water Management and Sanitation Department will be the Team Leader o f the Distr ict Appraisal & Monitor ing Team (DAMT) and wil l be responsible for appraising and approving or recommending administrative, financial, technical and process sanction o f the Vi l lage Act ion Plan to the Project Coordinator, Project Director o r D W M S C depending upon the estimated cost and delegated powers o f sanction, checking the quali ty o f works undertaken to ensure that the materials procured and works executed conforms to quality standards and in accordance with what has been planned by the community, monitoring the progress o f Vi l lage Ac t ion Plan implementation and recommend to DFMT, release of installments to the VPs based o n achievement o f milestones o f activities as planned by the V P in the Vi l lage Ac t ion Plan and conduct performance audit o f Vi l lage Act ion Plan implementation covering technical, social, environmental aspects by engaging an external agency.

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Village Level: Gram Sabha i s the general body consisting o f all persons registered in the electoral roles within the area o f a VP, and i s the constitutional body for participatory decision-making at the lower most level o f PRIs. The Gram Sabha wil l be responsible for: (a) approving participation in the Project and approving any contracts/MoU to be signed between VP and ZP; (b) appointment o f the Village Water & Sanitation Committee (VWSC)/Beneficiary Level Sub Committees (BLSC); (c) approving the Village Action Plans; (d) recommend levels o f community contribution, tariff rates, operation and maintenance charges etc. to be collected from community members; (e) appointing Social Audit Committee and take action by i t s e l f or to direct VP to take appropriate legal action based on the reports o f SAC; (f) review the progress o f activities undertaken by the VWSC, periodically for ensuring inclusiveness, equity, transparency, cost effectiveness and other principles o f the Project; (g) approving statements o f accounts and other reports, budget and annual accounts etc. on Project implementation presented by the VP; and (h) recommend agencies for performance audit, financial audit and technical audit on the working o f VWSC and Project implementation.

Village Panchayat - a body corporate incorporated as the Local S e l f Government under the Constitution o f India and the Bombay Village Panchayat Act 1958, i s the focal point in the implementation o f the project. All water supply and sanitation assets and facilities other than those created on private lands are owned by the VP. The VP w i l l be responsible for overall coordination o f project activities and specifically: (a) facilitate and monitor the VWSC activities; (b) request and receive a l l funds under the project and maintain separate books o f accounts wi th the assistance from VWSC; (c) approve the appointment o f Procurement Sub-committee, Finance Sub-committee and such other sub-committees suggested by VWSC; (d) recommend to the Gram Sabha for i t s approval, the Village Action Plan for water supply and sanitation prepared by VWSC; (e) coordinate wi th the DAMT for obtaining the required sanctions for the Village Action Plan; (f) finalize and incorporate the accounts o f VWSC with VP accounts and place before the Gram Sabha for approval; (g) arrange to get the accounts o f VWSC audited by Local Fund Audit (LFA) or firm o f chartered accountants, take action on the reports o f SAC as recommended by Gram Sabha; (h) arrange to demand community contribution, water charges etc. from the community members as approved by Gram Sabha through VWSC; and (i) enter into contractual agreements/MoU with ZP for implementing the Project and contract SOs, consultants and other service providers required for availing various technical assistance services from among the panel prepared by the ZP and with the approval o f Gram Sabha and monitor their activities.

VWSC i s the executive arm o f the VP entrusted wi th the responsibility o f carrying out the decisions o f the Gram Sabha on matters relating to project implementation as well as the general aspects related to Water Supply and Sanitation Sector in the village under the overall supervision o f the VP. VWSC w i l l maintain and operate the bank account on behalf o f the VP through persons authorized by Grama Sabha from amongst the VWSC members and prepare financial statements, maintain books o f accounts and other records on behalf o f the VP and submit them to Grama Sabha for approval. The VWSC wil l operate through various Sub-committees on Finance, Procurement etc. and execute contracts and procure materials and services on behalf o f the VP as approved by the Gram Sabha.

The Social Audit Committee (SAC) i s a self-check and internal monitoring mechanism for the Gram Sabha and the VP on the activities o f the VWSC and other sub-committees. It will carry out i t s monitoring and audit activities continuously along Project implementation and the objective i s not fault finding but correcting mistakes before it i s too late. The social audit i s not restricted to financial aspects but covers all aspects o f project implementation including social, economic, financial, technical, process-related etc. The specific roles are to (a) continuously review the functioning o f the VWSC and i t s various sub-committees in order to ensure that they carry out their roles and responsibilities in a just and fair manner and not violating the principles o f the project like, inclusion, equity, cost-effectiveness, transparency, environmental soundness etc.; (b) conduct detailed scrutiny o f such actions or decisions

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and report the findings along with recommended remedial measures to the Gram Sabha; (c) request for convening special Gram Sabhas to discuss findings o f social audit, wh ich are o f very serious nature. The report o f the SAC, as approved by Gram Sabha will be forwarded by the V P to the DWMSC. Such reports will be made available to any member o f the Gram Sabha upon request and payment o f a fee. The important findings in the report wi l l be prominently displayed in the notice board o f the VP at least seven days in advance o f the Gram Sabha; and (d) chair the Gram Sabhas discussing social audit report, if the Sarpanch i s a member in V W S C or any o f i t s sub-committees.

Staffinp & Training:

State Level: The Reform Support Team will have senior level Financial Adviser, o n deputation f rom the Accounts cadre o f GOM, assisting the Team to develop overall state level policies on financial management, accounting, auditing and beneficiary contributions etc.

The Operations and Monitor ing Team wil l include Finance and Accounting staff - Senior Accounts officer (l), Accounts Officers (2), Assistant Accounts Officers (6), a l l staff o n deputation f rom the Accounts cadre o f GOM. Each o f the Assistant Accounts Officers wi l l be placed with the Regional Facilitation Hubs (RFH) to perform extensive monitoring activities, provide quick response and feed back to the districts and also conduct key process and progress checks at the district level. I t wou ld be the responsibility o f the finance and accounts staff o f the OMT to ensure that the financial management system i s implemented as per the design agreed with the Bank.

District Financial Management Team (DFMT): A small team consisting o f a finance officer assisted by accounts clerks and two administrative clerks w i l l take care o f the financial support activities to the district level arrangement. The DFMT wil l also be responsible for arranging and coordinating the financial audit o f Project account o f VPs.

An accountant with adequate s k i l l s and experience in community accounting and capacity building will be an integral part o f the DFT and wil l be responsible for V P level facilitation and training functions.

Village Level: At the village level, the finance, accounts and social audit functions wi l l be with different institutions/committees as described earlier in the section o n institutional arrangements. At the V P level the V W S C can hire the services o f an accountant or entrust the responsibility a member o f V W S C duly trained under the project for book keeping and maintaining accounts. If necessary s k i l l s are not available at the village level, a suitable person can be identified and trained as a para-professional. As an alternate option, a cadre o f self-employed accountants wil l be developed and encouraged to set up accounting practices at the village level, whose services can be availed by the VWSC.

Training:

Since the project financial and accounting staff at the state and district level wou ld be newly recruited, and have no t been involved in the design of the project and the design o f the financial management system, they need to be trained in the requirements of accounting and reporting under the project. These trainings wi l l be arranged in-house by the HRD Department in consultation with the Finance Adviser and w i l l draw on internal and external expertise for the purpose. The accounting staff will also need to be trained to operate the computerized financial management system, once it i s ready.

SOs wil l p lay a key role in facilitating the village level institutions in book keeping, accounting, reporting functions and wil l need to understand the requirementdformats o f village level accounting. Training programs, manuals etc. wi l l be arranged to provide the SO staff with the requisite s k i l l s to impart the knowledge.

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Capacity building o f the institutions/committees at the village to manage the funds, maintain books o f accounts, report periodically o n the financial progress to a l l the stakeholders wi l l be one o f the most cr i t ical aspects o f the project. SOs wil l be responsible for providing training to the different village level institutions to prepare them to meet their fiduciary responsibilities.

The project wi l l promote, as a conscious strategy o f internalizing capacities at the village level, identification and development o f potential Para-professionals in book keeping and accounting. Para-professionals will be identified during the in i t ia l batches and developed by involv ing them in Project processes and capacity building activities. They wi l l j o i n themselves as SO, will be available as resources persons for SOs or wil l be available as individual resource persons to VPs. Thus they may take various roles as facilitators, motivators, trainers, resources persons or service providers to villages during the scaled up phase.

Accounting Policies and Procedures

The Financial Management Manual has been prepared and documents in detail the accounting and financial management processes and procedures. Books o f accounts for the project wou ld be maintained using double-entry bookkeeping principles. Standard books o f accounts (cash and bank books, joumals, ledgers, etc.) wou ld be maintained at the state & district levels. The books o f accounts will be maintained o n a manual basis until the integrated computerized accounting system i s developed.

A Chart o f Accounts has been developed to enable data to be captured and classified by expenditure center, budget heads, procurement methods, project components/activities, and disbursement categories. This matches closely with the classification o f expenditures and sources o f funds indicated in the project documents (Project Implementation Plan and Project Cost Tables). The key issues that have been addressed in the design o f the accounting policies & procedures are:

9 Accounting entries for recording the beneficiary contributions in kind wil l be made on the basis o f certification o f achievement o f the specific milestones as la id down in the Sub-project agreements (specifying the contributions in kind l inked to each milestone). Releases o f installments against the sub-project agreements will be recorded as expenditures in the books o f accounts o f WSSD. All other releases o f funds to accounting centers (District Teams etc.) wi l l be accounted for as advances in the books o f accounts o f and adjusted to expenditures only on submission o f expenditures. At a l l accounting centers, separate books o f accounts will be maintained for the project funds as per the requirements specified in the Financial Management Manual.

.

VWSC/VP wil l maintain accounts recorddregisters as follows: (i) Cashhank Book; (ii) contributions received in casWlabor/materials; (iii) materials purchased and utilized. In addition, the VWSC/VPs wil l retain a l l vouchers, bills, supporting documents and ensure that the Bank pass books are regularly updated. Similar accounts wi l l be maintained for the Operation & Maintenance Bank account and reports submitted to i t s members and Gram Sabha.

2. Audit Arrangements

The Comptroller and Auditor General o f India (CAG) through i t s offices in Maharashtra wi l l be the statutory auditor for the project. The AG's off ice wi l l conduct annual audit o f the operations o f the OMT at the state level, Water Management and Sanitation Department at the ZP level and will also cover the Vi l lage Panchayats o n sample basis (10% for a l l VPs receiving total project funds below Rs. 10 lakhs,

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25% for a l l VPs receiving total project funds above Rs. 10 lakhs and below Rs. 25 lakhs, 50% for a l l VPs receiving total project funds above Rs 25 lakhs and below Rs. 50 lakhs and a l l VPs receiving total project funds above Rs. 50 lakhs). The audit report wou ld consist o f (a) financial statements and (b) and audit opinion confirming whether the project financial statements have been prepared in accordance with consistently applied Accounting Standards and give a true and fair v iew o f the operations o f the project during the year and that the withdrawals f rom the IDA Credit made o n the basis o f Statements o f Expenditure (SOEs) / Financial Management Reports (FMRs) together with the procedures and internal controls involved in their preparation, can be rel ied o n to support the related withdrawals. Additionally, the auditor wi l l be required to provide a management letter to project management highlighting findings during the audit.

Implementing Agency WSSD, Government of Maharashtra Department o f Economic

The audit report with the management letter wi l l be submitted to IDA within six months o f the close o f each financial year. The TORS o f the audit has been prepared in agreement with IDA and wil l be agreed with the CAG. The form o f annual financial statements to be certified wi l l also be agreed with the CAG.

Audit Auditors SOE/Project Audit

Special Account

Comptroller and Audi tor General o f India, Maharashtra Comptroller and Auditor General o f India,

Thus the fol lowing audit reports will be monitored in the Audit Reports Compliance System (ARCS):

I A f fa i rdGOI I I N e w De lh i I

VPs as constituents o f local rural governments, are audited by the State Government under the Bombay Local Fund Audit Act, 1930. As a demonstration o f good practice, each o f the VPs implementing the project will be required to submit audited statements o f expenditures and audit reports for the project within 6 months o f the close o f the financial year. The VPs wil l also have the option o f engaging f i r m s o f chartered accountants f rom the panel prepared by the ZP. The ZP wil l maintain a panel o f chartered accountancy f i r m s at the district level based o n the general l i s t approved by the Accountant General and agree o n the rates o f fees to be charged. Terms o f reference have been developed fo r the audit at the GP level and i s documented in the Financial Management Manual. The project wi l l retain 2% o f the total sub project costs until the completion o f the sub project and submission o f the audit reports. Fol low-up o f the audit observations wi l l be monitored by the Distr ict Financial Management Teams and such reports will be made available to the Bank supervision Teams, as required.

Reporting and Monitoring

The monthly reporting formats f rom each o f the accounting centers have been designed to provide summarized monthly financial information o n the fund flows, balances in cashhank, status o f advances and expenditures classified by project components/activities, disbursement categories, procurement methods etc. These reports wi l l be compiled by the OMT at the state level o n monthly and quarterly basis to provide meaningful FMRs. An important aspect o f the reports wou ld be that the expenditures reported under the project wou ld need to be regularly reconciled with the reports submitted to the Accountant General’s Off ice and wou ld need to explain differences, if any. These reports wi l l be prepared f rom the start o f the project, submitted to IDA within 45 days o f the close o f the quarter and used by the project at the state and district level and IDA for monitoring and management decision making.

The annual audited project financial statements, to be provided by GOM to IDA wou ld comprise: (a) a consolidated Project Sources and Application o f Funds for the whole project; (b) classification o f expenditures by project activities/components and disbursement categories; (c) consolidated statement o f

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withdrawals (for the whole project) f rom the IDA Credit made o n the basis o f Statements o f Expenditures (SOEs) and documented claims; and (d) reconciliation o f reported expenditures with the total withdrawal claims submitted during the year.

The financial arrangements between the ZP and V P (as are envisaged) will no t require financial accounting for the sub project expenditures in the project books. All payments against the contracts wi l l be recorded as expenditures in project books. However, the VPs wil l be required to submit regular SOEs summarizing sources and uses o f funds against the plans in order to build accountability and demonstrate the presence o f adequate accounting and bookkeeping arrangements.

VPs wil l prepare a simple report summarizing (i) the sources and uses o f funds, indicating the balances in cashhank; (ii) activities completed, cost and activities to be completed in the next month); (iii) contributions in labor and materials. The report wil l be presented to i t s members and in the Gram Sabha and provide a l l records for scrutiny by members. The submission o f the financial report wi l l be required as a precondition fo r release o f subsequent installments against the individual sub-project agreements. The financial management arrangements set up wou ld emphasize o n providing local level transparency, social audit and self-accountability. These measures wou ld include a simple summary o f the accounts (amounts received f rom the members and the project, amount spent and balances in hand) to be publ ic ly posted in the notice board in the Gram Sabha. In addition, the books/registers, vouchers and bank pass books wou ld be open for perusal by members.

Computerized Financial Management System

The computerization o f the financial management system has no t been envisaged f rom the start o f the project but wil l be init iated before the end o f Year 2 o f the project. The key issues considered whi le developing the design o f the software wou ld be:

0 Integration with the M I S system - qualitative information on the sub project proposals/contracts tracked in the M I S system are l inked by common code numbers in the F M S system. Financial information relating to the sub-project contracts are tracked by the same code numbers. The system wou ld al low accounting o f mult iple projects and overall consolidation at the entity level. The system wou ld be used for generating financial reports required to be submitted to the Accountant General as we l l as required for project management.

0

0

Impact o f Procurement Arrangements

The nature and type o f the contractual arrangements with the VPs lay the basis o f accounting fo r the project. As has been envisaged, the WSSD through the ZP wil l enter into contractual arrangements with the VPs for implementation o f the water supply schemes. These agreements wi l l be based o n lump sum contracts with payments based on performance milestones agreed and documented in the contracts. The achievement o f the performance milestones will be certified. Thus, the project will only need to account for the release o f performance-based installments.

Action Plan

The key actions required to ensure adequate financial management arrangements are in place are as follows:

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Action

Actions Agreed for Enhancement of the Financial Management (Le., completed as I

Responsible Completion Date Person

part of project implementation) ~

Implementation o f a computerized financial I management system

WSSD, GOM September 30,2005

3. Disbursement Arrangements Disbursements f rom IDA Credit wou ld in i t ia l ly be made the transaction-based system (traditional disbursement procedures, such as reimbursement, direct payment, etc) and may be converted to the report based system at the option o f the GOM and GO1 after the successful demonstration o f regular, timely and adequate Financial Monitor ing Reports.

A Special Account wou ld be maintained in the Reserve Bank o f India; and wou ld be operated by the Department o f Economic Affairs (DEA) o f GOI. The authorized allocation o f the Special Account wou ld be US$18.0 m i l l i on which represents the average o f six months o f eligible expenditures to be paid f rom the special account.

OMT, WSSD, GOM wil l compile the financial information f rom a l l i t s management constituent agencies and prepare reimbursement claims o n a monthly basis. The OMT wil l also be responsible for submission of the withdrawal applications to C A A & A in DEA for onward submission to IDA for replenishment o f the special account or reimbursement.

Disbursements will be made on the basis o f statement o f expenditure for (a) c iv i l works for contracts not exceeding US $250,000; (b) goods under contracts no t exceeding US$200,000; (c) consultants for contracts not exceeding US$200,000 fo r f i r m s and US$50,000 for individuals; (d) incremental operating and maintenance costs; (e) training, workshops and exposure visits; and (9 sub-project grants under Parts A and D. 1 .and D.2.

Retroactive Financing: Eligible expenditures incurred by GOM prior to Credit signing, but after March 1, 2003, will be financed under retroactive financing with a limit o f SDR 1.8 m i l l i on (equivalent o f US$2.5 mil l ion) and subject to GOM fol lowing IDA'S procurement procedures.

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Allocation of credit proceeds (Table C)

Expenditure Category Community Grants/sub-projects Works Goods

Table C: Allocation of Credit Proceeds

Amount in US$million Financing Percentage 122.00 90%

1.75 80% 6.50 100% foreign, 80% local

Operating Costs

Unallocated

Total Project Costs with Bank Financing

Total

I Services-1: consultinn Services I 14.00 I 90% I

8.75

10.00

181.00

181.00

80% until April 2006,60% until April 2008, and 40% thereafter

I Services-2: NGO Services and Training I 18.00 I 100% I

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Annex 7: Project Processing Schedule INDIA Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

Project Schedule Planned Actual ~

Time taken to prepare the project (months) First Bank mission (identification)

Appraisal mission departure

Negotiations Planned Date of Effectiveness

Prepared by: Government o f Maharashtra

18 14 0210 1t2002 0210112002 0511 0/2003 05/05/2003 07/07/2003 07/03/2003 1213 112003

Preparation assistance:

Bank staff who worked on the project Name

included:

Task Leader Speciality

Meena Munshi R. R. Mohan Vivek Srivastava Parmesh Shah Smita Misra Manvinder Mamak Kiran Baral N.V.V. Raghava P.C. Mohan R.S. Pathak S. Satish R. Soopramanien Rachel Beth Kaufmann Barbara Verardo Sujata Pradhan Theodosias Karmiris Jaqueline Julian Philippe Dongier Alex Bakalian Ramesh Deshpande N.Tankhiwale Ghazali Raheem

Social, Co-Task Leader Institutions Specialist Community Driven Development Aspects EnvironmentlEconomics Financial Procurement Engineering IEC Water resources rr ibal Aspects Legal Health Aspects Young Professional (Social Anthropologist) Program Assistant Program Assistant Program Assistant Peer Reviewer Peer Reviewer Consultant Consultant Consultant

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Annex 8: Documents in the Project File* INDIA: Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

A. Project Implementation Plan Government o f Maharashtra, Water Supply and Sanitation Department, PIP, June 2003

Manual, June 2003 Government o f Maharashtra, Water Supply and Sanitation Department, Community Operational

B. Bank Staff Assessments

C. Other Preparatory Studies/Analyses: Social and Environmental Analysis (EM), February 2003 Options for Institutional Arrangements (Scott Wilson Kirkpatrick and JPS Associates), December 2002 Source Sustainability (D.H.V. Consultants), May 2003 Sanitation & Hygiene Promotion Strategy and Action Plan (PriMove Infra. Dev. Conslt.), January 2003 Sector Status - (Scott Wilson Kirkpatrick and JPS Associates), December 2002 N G O Capacity Assessment (PriMove Infra. Dev. Conslt.), January 2003 Water Quality Analysis (NEEM), December 2002 Technical Analysis (Gherzi Eastern Ltd), February 2003 Financial Management System (Tata Conslt. Services), January 2003 Financial and Economic Analysis (Tata Conslt. Services), February 2003 Developing Plan for restructuring MJP and GSDA (Feedback Infra.), July 2003 Operational Gender Strategy and Action Plan, M a y 2003 *Including electronic files

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Annex 9: Statement of Loans and Credits INDIA: Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

2 1-May-2003 Difference between expected

and actual disbursements' Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd P 0 6 7 6 0 6 PO73094 PO72123 PO76467 PO71272

P 0 6 9 8 8 9 P 0 5 0 6 5 3 P 0 5 0 6 6 8 PO50647 PO40610 PO74018 P 0 7 2 5 3 9 PO71033 PO55455 PO38334 PO50658

PO35173 PO59242 PO55454 PO71244

PO70421 PO67543

PO10566 PO6721 6 P 0 5 0 6 6 7

PO45049 PO49770 P 0 5 0 6 5 7 P 0 6 7 3 3 0

PO35172 PO59501 PO10505 PO55456 PO09972 PO50651 PO50646 P 0 5 0 6 3 7 PO41264

P 0 4 9 5 3 7 P 0 4 5 0 5 0 PO45051 PO38021 PO35827 PO35824 PO35169 PO10561 PO10496 P 0 4 9 3 8 5 PO49477 PO10531 PO09584 PO10511 PO09995

2003 2003

2003 2003 2003 2002 2002 2002 2002

2002 2002 2002 2002 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2001 2000

2000 2000 2000 2000 2000 2000 2000 2000 2000 1999

UP ROADS AP COMM FOREST MANG Tech/Engg Quality Improvement Project Chatt DRPP AP RURAL POV REDUCTION

MIZORAM ROADS KARNATAKA RWSS II MUMBAI URBAN TRANSPORT PROJECT UTTAR PRADESH WATER SECTOR RESTRUCTU RAJ WSRP Gujarat Emergency Earthquake Reconstruct KERALA STATE TRANSPORT KARN TANK MGMT

RAJ DPEP II RAJ POWER I TECHN EDUC 111 POWERGRID Ii MP DPlP

KERALA RWSS Grand Trunk Road Improvement Project KARN HWYS

LEPROSY II GUJARAT HWYS KAR WSHD DEVELOPMENT UP DPEP 111 AP DPlP REN EGY II UP Health Systems Development Project IMMUNIZATION STRENGTHENING PROJECT UP POWER SECTOR RESTRUCTURING PROJEC IN-TAfor Econ Reform Project

RAJASTHAN DPlP IN-Telecommunications Sector Reform TA NATIONAL HIGHWAYS 111 PROJECT

MAHARASH HEALTH SYS 1999 UP SODIC LANDS II 1999 TN URBAN DEV II 1999 WTRSHD MGMT HILLS I1 1999 AP POWER APL I 1999 RAJASTHAN DPEP

1999 2ND NATL HlViAlDS CO 1998 DPEP 111 (BIHAR)

1998 WOMEN a CHILD DEVLPM 1998 DIVAGRCSUPPORT 1998 UP FORESTRY

1998 NATL AGR TECHNOLOGY 1998 ORISSA HEALTH SYS 1998 AP ECON RESTRUCTURIN 1998 KERALA FORESTRY

1997 REPRODUCTIVE HEALTH1 1997 ECODEVELOPMENT 1997 MALARIA CONTROL 1997 STATE HIGHWAYS I(AP)

488.00 0.00 0.00 0.00 0.00 0.00

0.00 463.00

0.00 0.00

0.00 255.00

0.00

0.00 180.00

0.00

450.00 0.00

0.00 589.00 360.00

0.00

381.00 0.00 0.00 0.00

80.00 0.00 0.00

150.00 0.00 0.00

62.00 516.00

0.00 0.00

105.00 85.00

210.00 0.00

0.00 0.00

0.00 79.90

0.00 96.80 0.00

301.30 0.00 0.00 0.00 0.00

350.00

0.00 108.00 250.00 112.56 150.03 60.00

151.60

79.00 149.20 140.00 442.80

0.00 98.90 74.40

0.00 64.90 0.00

110.10

65.50 0.00 0.00

30.00 0.00

100.40 182.40

111.00 50.00

110.00 142.60

0.00 45.00

100.48 0.00 0.00

134.00 194.10

0.00 50.00 0.00

85.70 191.00 152.00 300.00 50.00 52.94

100.00 76.40

241.90 39.00

248.30 0.00

164.80 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00

0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

20.31 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 2.34 0.00 0.00

483.12 115.48 251.61 11 3.02 160.20

59.65 156.96 507.08 153.05 143.64 395.11 237.80 105.37 63.65

126.19 57.36

313.61 105.03 62.59

51 1 .87

321.81 12.66

303.92 103.43 74.22

89.47 114.44 98.48 54.44 45.50 40.02 95.62 57.72

41 1.60 100.57 105.94 28.86 57.08 24.60 52.16 86.44

108.68 167.67 47.70 10.42

84.50 57.72

196.03

13.81 78.14

1.95 101.07

69.65

14.39 -2.88 -2.01 0.00 2.72

1.53 3.77 0.84

28.26 5.74

222.83 -2.87 3.17 2.35

63.36 17.02 94.27 25.73 12.36

133.21

49.47 0.08

130.25 20.39 45.43

14.35 36.18 26.22 23.98 22.83 12.96 40.59 49.92

160.41 76.21 72.71 12.21 39.36 44.91 69.44 41.98

106.97 94.13 46.28 11.42 82.90 41.10

177.13

14.03 76.45

5.67 106.51

69.65

0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

24.72

0.00 0.00

0.00 0.00 0.00

76.49 0.00

0.00 -207.02

- 89 -

Difference between expected and actual

disbursements' Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA GEF Cancel. Undisb. Orig Frm Rev'd PO10473 1997 TUBERCULOSIS CONTROL 0.00 142.40 0.00 0.00 81.61 91.94 0.00

PO35158 1997 AP IRRIGATION 111 175.00 150.00 0.00 45.00 72.86 121.06 12.00

PO44449 1997 RURAL WOMEN'S DEVELOPMENT 0.00 19.50 0.00 0.00 13.36 14.51 -3.72 0.00 PO43728 1997 ENV CAPACITY BLDG TA 0.00 50.00 0.00 0.94 8.65 14.64

PO36062 PO49301 PO10480 PO10484 PO10485 PO35170 PO10529 PO35821

1997 ECODEVELOPMENT 1997 A.P. EMERG. CYCLONE 1996 BOMBAY SEW DISPOSAL 1996 UP & Uttaranchal RURAL WATER 1996 HYDROLOGY PROJECT 1996 ORISSA POWER SECTOR 1996 ORISSA WRCP 1996 DPEPII

P 0 3 5 8 2 5 PO10461 1995 MADRAS WAT SUP II PO10464 1995 DISTRICT PRIMARY ED PO10476 1995 TAMIL NADU WRCP PO1 0522

1996 STATE HEALTH SYS II

1995 ASSAM RURAL INFRA

0.00 50.00

167.00 59.60 0.00

350.00 0.00 0.00

28.00 100.00 25.00 0.00

142.00 0.00

290.90 425.20

0.00 350.00 275.80 0.00

0.00 260.30 0.00 282.90 0.00 126.00

20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

5.86 19.00 22.00 18.90 19.64 95.00

0.00 0.00

4.37 10.11 18.06 0.35

13.56 58.32 57.64 28.60

12.15 33.76 42.18 19.25 55.10

153.32 85.03

-26.44

4.27 14.76 6.20

-0.92 31.45 -4.17 28.08 0.00

0.00 0.00 42.54 81.35 0.00 0.00 189.30 7.77 197.07 0.27 0.00 0.00 33.94 49.15 29.83 0.00 25.01 33.19 99.29 68.19 0.00 0.00 21.58 34.55 22.76

~ _ _ _ _ _ _ _ _ ~

Total 627940 7401 21 2000 46330 784523 352387 10322

- 90 -

INDIA STATEMENT OF IFC's

Held and Disbursed Portfolio Jun 30 - 2002

In Mil l ions U S Dollars

Committed Disbursed IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic Indus VCF o.on 1992

1992 1992194197 1989195 2001 2001 198 1190193 2002 200 1 1996199100

1992196197

2001 2001 1997 1981 1995 2001 2001 1995 1997 1997100 1995 2001 1986193194195 2000102 0 1998 1990 198 1186189192194 2000 1989190194 1987188190l93 1989 1996 1991196101 2001 1991 1997 2002 1989 1994 1992193 1997 200 1

Info Tech Fund Ispat Industries JSB India Jetair LeamingUniverse M&M MMFSL MahInfra Moser Baer

NIIT Orchid Owens Corning Pennar Steel Prism Cement RCIHL RTL Rain Calcining SAPL S R E I Sara Fund Spryance Sundaram Finance Sundaram Home TCFC Finance Ltd TCWJICICI

TISCO Tanflora Park Tata Electric Titan Industries UCAL United Riceland VARUN Vysya Bank WIV Walden-Mgt India Webdunia AEC Ambuja Cement h i n d Mills Asian Electronic BTVL

NICCO-UCO

TDICI-VECAUS I1

....

0.00 0.00 0.00 0.00 0.00 0.00

17.19 0.00

24.81 2.43 0.00 0.00

25.00 0.00

12.19 0.00 0.00

13.33 0.00

10.00 0.00 0.00 0.00

10.23 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

10.00 0.00 0.00 0.00 0.00 0.00 3.12 0.00 0.00 0.00 0.00

0.61 0.62 3.00 0.28 0.00 0.25 0.55 0.00

10.00 14.80 0.00 0.00 0.00 0.00 0.07 5.02 1.97 0.45 5.46 0.07 0.00 5.94 2.00 0.00 0.00 0.00 6.46 0.15 0.00 0.51 0.00 0.52 0.53 0.00 0.36 7.30 2.11 0.03 2.00 0.00 4.94 4.91 5.50

20.00

0.00 0.00 0.00 0.00

15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 7.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 9.18 2.43 0.00 0.00

25.00 0.00

12.19 0.00 0.00

13.33 0.00

10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

10.00 0.00 0.00 0.00 0.00 0.00 3.12 0.00 0.00 0.00 0.00

0.61 0.62 3.00 0.28 0.00 0.25 0.55 0.00 0.00

14.80 0.00 0.00 0.00 0.00 0.07 5.02 1.97 0.45 5.46 0.07 0.00 5.94 2.00 0.00 0.00 0.00 6.46 0.15 0.00 0.00 0.00 0.52 0.53 0.00 0.36 7.30 2.11 0.03 0.67 0.00 4.94 4.91 5.50

20.00

0.00 0.00 0.00 0.00

15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 7.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total Portfolio: 214.98 185.51 50.00 66.75 156.13 156.65 40.00 62.25

-91 -

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

2002 Apollo Tyres L td 20.00 0.00 0.00 15.00 2002 Escorts Telecom 32.00 0.00 15.00 30.00

2002 Cosmo Films 10.00 0.00 0.00 0.00

1994 INDORAMA DM SWAP 0.70 0.00 0.00 0.00 1997 GVK-Swap 2.50 0.00 0.00 0.00 2000 APCL 7.10 0.00 1.90 0.00 2000 Orissa WESCO 11.00 0.00 0.00 0.00 2000 Orissa NESCO 28.00 0.00 0.00 0.00 2001 GI Wind Farms 9.19 0.98 0.00 0.00 2002 TELCO 1 67.00 0.00 0.00 0.00 2002 Usha Beltron 2 1 .oo 0.00 3.60 0.00

Total Pending Commitment: 209.09 0.98 20.50 45.00

- 92 -

Annex I O : Country at a Glance INDIA: Maharashtra Rural Water Supply and Sanitation "Jalswarajya" Project

POVERTY and SOCIAL

2001 Population, mid-year (m/llions) GNI per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 1995-01

Population (%) Labor force (%)

Most recent estimate (latest year available, 1995-01) Poverty (% of population below nabonalpovelty h e ) Urban population (% of total population) Life expectancy at birth (years) Infant mortality (per 1,000 bve births) Child malnutrition (% of children under 5) Access to an improved water source (% of populabon) Illiteracy (% ofpopulation age 15+) Gross pnmary enrollment (% of school-age populabon)

Male Female

KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982

GDP (US$ billions) Gross domestic investmenffGDP Exports of goods and serviceslGDP Gross domestic savingsiGDP Gross national savingslGDP

Current account balancelGDP Interest paymentslGDP Total debffGDP Total debt servicelexports Present value of debffGDP Present value of debffexports

188.0 22.4 6.1

18.6 19.9

-2.0 0.3

12.1 11.1

1982-92 1992-02 (average annual growth)

GDP per capita 3.4 4.3 GDP 5.6 6.1

lndia

1,033.4 470

480.8

1.8 2.3

29 28 63 69 47 88 42

101 109 92

1992

266.9 21.9 8.6

22.0 21.9

-0.6 1.3

32.0 29.2

2001

3.9 2.1

South Asia

1,355 460 617

1.9 2.4

28 63 74 47 87 45

100 110 90

2001

460.6 22.5 13.8 23.4 25.3

-0.6 0.9

21.6 14.0

2002

5.5 3.7

Low- income

2,459 420

1,030

1.9 2.4

32 59 77

76 38 96

102 86

2002

481.4 22.4 13.3 24.0 25.9

0.2 0.8

20.2 11.8 14.7 89.8

2002-06

6.0 4.5

Development diamond*

~

Life expectancy

~ T GNI Gross per + + primary capita enrollment

I , -

1 Access to improved water source

~ -lndia Low-income group

~ Economic ratios'

Trade i

investment Domestic savings

1

Indebtedness

lndia Low-income group - Exports of goods and services 6.1 12.8 23.4 6.0 10.7 STRUCTURE of the ECONOMY

("7 of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annual growth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and services

Manufacturing

1982

37.4 25.3 16.3 37.2

70.2 10.1 8.8

1982-92

3.0 6.8 7.0 6.9

5.4 6.8 5.4 5.4

1992

31.5 26.4 16.1 42.1

66.7 11.4 8.6

1992-02

3.0 6.4 7.1 8.2

5.5 7.3 7.5

13.7

2001

24.9 26.6 15.7 48.5

65.1 13.1 14.5

2001

-0.4 6.6 7.3 5.6

-1 .I 0.6 9.4 6.5

2002

25.0 25.9 15.3 49.2

65.4 12.8 13.9

2002

5.7 3.3 3.4 6.8

5.4 7.2 3.0 3.5

Growth of Investment and GDP (Oh) 30

20

10 I

I OS6 97 98 99 00 01 02

GDI *GDP - I Growth of exports and imports (Oh)

~ 4 5 T

9'7 98 99 00 01 02

E X D O ~ ~ S +imDorts

Note: 2002 refers to 2001-02; data are preliminary estimates. 'The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.

- 93 -

India PRICES and GOVERNMENT FINANCE

Domestic prices (% change) Consumer prices Implicit GDP deflator

Government finance (% of GDP, includes current grants) Current revenue Current budget balance Overaii surplusldeficit

TRADE

(US$ millions) Total exports (fob)

Marine products Ores and minerals Manufactures

Gems and jeweity Readymade garments

Total imports (cif) Food Fuel and energy Capital goods

Export price index (1995=100) import price index (1995-100) Terms of trade (1995=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services

Software exports

Imports of goods and sewices Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ millions) Conversion rate (DEC, local/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Official grants Official creditors Private creditors Foreign direct investment Pottfolio equity

World Bank program Commitments Disbursements Principal repayments Net flows Net transfers

Composition of net resource flows

1982

13.6 10.3

1982

8,697 313 463

5,547 849 733

15,970 1,446 5,832 2,209

96 125 77

1982

11,457

17,666 -6,209

213 2,314

-3,682

5,950 -2,268

4,390 9.0

1982

22,709 1,181 5,906

1,586 137 60

750 1,103

829 0 0

2,503 1,207

86 1,122 1,011

1992

15.6 13.8

1992

18,266 585 930

13,148 2,738 2,199

21 ,OM 275

5,325 4,233

104 110 95

1992

23,288

24,879 -1,591

-3,830 3,783

-1,638

-1,757 3,395

9,220 24.5

1992

85,421 8,459

14,203

7,861 1,170

242

461 2,895 1,467

97 6

2,186 2,184

669 1,516

772

2001

3.9 4.5

19.6 -8.6

-10.8

2001

44,894 1,396 1,155

34,391 7,384 5,578

59,264 1,443

15,650 8,941

94 100 94

2001

63,764 6,341

75,656 -1 1,892

-3,821 12,798

-2,915

-1,581 4,496

42,281 45.7

2001

99,433 7,079

18,888

10,868 1,423

506

382

4,103 2,165 3,026

-237

999 1,761 1,361

400 -168

2002

3.1 3.5

19.2 -8.1

-11.8

2002

44,915 1,218 1,214

33,241 7,306 5,004

57,618 2,044

14,000 9,315

90 93 96

2002

65,201 7,174

73,705 -8,504

-2,654 12,125

967

-12,462 11,495

54,106 47.7

2002

97,071 6,835

19,269

9,282 1,089

565

336 -264

2,342 2,760

2,244 1,636 1,148

488 -18

-1,608

~ ‘:6 97 96 99 00 01 i 2 l

-GDP deflator -CPi

1 1 Export and Import levels (US$ mill.)

175,000

, 150 000

25 000

O2 I 96 97 96 99 00 01

Exports Imports

1 I Current account balance to GDP (Oh)

1 -

Composition of 2002 debt (US$ mill.)

G: 2.951 A: 6,835

F 44,640

A - iBRD B - IDA D . Other muitilateral F - Private

E - Bilateral

GI Short-term 1 C - iMF

- 94 -