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### Viewing cable 06PHNOMPENH1924, CAMBODIA WATER AND SANITATION ASSESSMENT

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
06PHNOMPENH1924 | 2006-10-23 10:10 | 2011-07-11 00:00 | UNCLASSIFIED | Embassy Phnom Penh

`

    VZCZCXYZ0009
    PP RUEHWEB

    DE RUEHPF #1924/01 2961010
    ZNR UUUUU ZZH
    P 231010Z OCT 06
    FM AMEMBASSY PHNOM PENH
    TO RUEHC/SECSTATE WASHDC PRIORITY 7502
    INFO RUEHBK/AMEMBASSY BANGKOK 1893

` `

    UNCLAS PHNOM PENH 001924

    SIPDIS

    SIPDIS

    STATE FOR EAP/MLS, EAP/RSP, OES/PCI--SALZBERG AND BLAINE
    BANGKOK FOR REO-JIM WALLER
    STATE PLEASE PASS TO USAID FOR MILLER AND DEELY

    E.O. 12958:  N/A
    TAGS: ESTH SENV EWWT CB
    SUBJECT:  CAMBODIA WATER AND SANITATION ASSESSMENT

    REF:  STATE 128229

    ¶1.  Summary:  Over the last decade, the Phnom Penh Water Supply
    Authority (PPWSA) has become a commercially viable public enterprise
    regarded as a model across Southeast Asia.  Unfortunately, access to
    improved water supply in rural areas is severely limited and,
    throughout Cambodia, sanitation is a critical problem with a direct
    impact on environmental quality.  Promoting relatively small,
    decentralized sanitation systems in rural areas; using water
    revolving funds and "multi-tranche" funding to increase access to
    investment capital; and strengthening the regulatory and policy
    framework for rural water supply will all help to encourage the
    development of improved water and sanitation facilities.  End
    Summary.

    ¶2.  This report, a response to reftel request for a review of
    Cambodia's water and sanitation needs and opportunities for
    strengthening U.S. engagement on these issues, is a collaborative
    effort between the Embassy in Phnom Penh, USAID/Cambodia and
    USAID/RDMA in Bangkok.

    Water and Sanitation Conditions in Cambodia
    -------------------------------------------

    ¶3.  Access to improved water supply in Cambodia is among the lowest
    in the Asia.  According to UNICEF, only 34% of Cambodian households
    have access to improved drinking water and only 6% have household
    connections.  Urban residents have slightly better conditions with
    approximately 56% having access to improved water supply and 31%
    with household connections.  Only 29% of the rural population has
    access to improved water with only 1% of rural residents having
    household connections.

    ¶4.  Improved sanitation coverage is similarly low in Cambodia with
    only 16% of the population having access.  Approximately 53% of
    urban residents have access to improved sanitation; however, only 8%
    of rural residents have access.

    ¶5.  Water resources are generally adequate in Cambodia.  The Mekong
    and Tonle Sap Rivers provide substantial surface water resources
    utilized for fisheries, agriculture, industry and domestic supply.
    Total freshwater resources are estimated to be more than 35,000
    cubic meters per capita (nearly 6 times the regional average).
    Seasonal flooding is common in Cambodia and can be followed by
    periods of drought, particularly in southeastern and northwestern
    regions of the country.  Drought impacts are most significant to the
    agriculture sector which accounts for 94% of freshwater withdrawals;
    however, seasonal droughts can affect local domestic water supply.

    ¶6.  The Department of Potable Water of the Ministry of Mines,
    Industry and Energy (MIME) has the primary responsibility for urban
    water supply in Cambodia's provincial cities.  Since the 1991 peace
    accord, the RGC has experimented with several different service
    delivery models for urban areas including private concessions.  By
    far the most successful service model is the Phnom Penh Water Supply
    Authority (PPWSA), a public enterprise with autonomous management
    and financial controls.  The Ministry of Rural Development (MRD) is
    responsible for rural water supply.

    ¶7.  The responsibility for sanitation service in urban areas
    generally falls to the municipal government.  However, the Ministry
    of Public Works and Transportation (MPWT) plays an important and
    substantial role in the development of wastewater infrastructure,
    particularly centralized sewerage and wastewater treatment systems.
    The MPWT was the responsible government counterpart on recent Asian
    Development Bank (ADB) investments in wastewater infrastructure in
    Sihanoukville.

    Needs Assessment
    ----------------

    ¶8.  With the successful reform of the PPWSA into a commercially
    viable, utility operation, the RGC has a demonstrated model for
    successful urban water service delivery.  Current government plans
    call for similar reform initiatives for Siem Reap, where financial
    autonomy, performance management techniques and operational
    transparency will be employed to achieve necessary service
    improvement and expansion.  The RGC further plans to enter into
    performance contracts with other provincial waterworks offering
    future financial autonomy as incentive for performance improvement.
    Donors including the World Bank and the Japanese International
    Cooperation Agency (JICA) are presently implementing capacity
    building projects to support further provincial waterworks reform.
    Additional support to these capacity building efforts could be
    coordinated to assure that both the functional (policy and
    operational) and personal leadership aspects of the PPWSA success
    are transferred to provincial counterparts.

    ¶9.  The lack of a formal policy and regulatory environment governing
    provision of rural water supply has fostered the development of
    small-scale, private water supply vendors.  This market-driven
    service delivery model has resulted in incremental expansion of
    service to Cambodia's rural population.  Nevertheless, accessible,
    adequate water supply is still lacking in rural communities.
    Additional policy and regulatory activities should be undertaken to
    safeguard the rural public from over-pricing and ensure healthful
    service delivery standards are met.  Incentives for further rural
    water supply expansion should be considered to promote further
    private sector investment and the organization of community service
    providers, joint service councils, or other delivery organizations.
    Financial incentives to be considered may include the development of
    revolving funds which mobilize local finance for service delivery
    expansion.  Formal service agreements and concessions with private
    sector vendors could also be utilized to regulate and provide
    incentives for rural water service delivery.

    ¶10.  Sanitation conditions in Cambodia must be considered a priority
    problem.  The vast majority of domestic wastewater is discharged to
    natural waterways and the environment without treatment, directly
    impacting inland and coastal fisheries important to the national
    economy.  The ADB has made recent investments in a wastewater
    treatment plant in Sihanoukville.  The European Commission has also
    funded construction of a wastewater treatment system in Battambang.
    These projects provide much needed treatment capacity, but have thus
    far addressed only a small percentage of treatment requirements.  A
    sustainable business model for provision of sanitation services has
    not yet been demonstrated in Cambodia.  Additional investments in
    decentralized treatment systems for priority sanitation issues and
    progress toward generating adequate revenue for sanitation system
    operation and maintenance are recommended to have immediate and
    sustainable impact on sanitation conditions.

    ¶11.  Given the general lack of water and sanitation infrastructure
    throughout Cambodia, and especially in rural areas, meeting
    Millennium Development Goal targets will require substantial capital
    investment to complement sector reform initiatives.  Major
    development banks including the World Bank, ADB and the Japanese
    Bank for International Cooperation (JBIC) have provided grants and
    loan packages for water and sanitation in recent years.  These
    investments have targeted large projects in major provincial areas.
    Additional capital investment for secondary provincial cities and
    rural areas is required.  Different financing tools, including
    pooled financing mechanisms and municipal bonding should be
    considered to mobilize local financial capital for small to medium
    sized projects not covered by development bank loan packages.
    Additionally, these mechanisms could provide sustainable sources of
    capital financing for future service improvements and expansion.

    Current Activities
    ------------------

    ¶12.  The RGC has taken important reform initiatives since 1991. With
    the support of World Bank, the Phnom Penh Water Supply Authority
    (PPWSA) was established in 1997.  The PPWSA has introduced automated
    systems for accounting management and billing, incorporated a
    profit-sharing system for employees, increased metering and fines
    for illegal connections and introduced innovative technology to
    reduce system leakages.  Given full financial autonomy and a reform
    agenda, the PPWSA has developed into one of the best models for
    urban water supply in all of Asia.  The PPWSA has successfully
    repaid all of its loans for infrastructure improvement early and
    currently borrows on the open market without need for sovereign
    guarantee. The Cambodian government has recently launched an
    initiative to implement a similar reform agenda with the Siem Reap
    waterworks.  Other provincial waterworks will be encouraged to
    reform through signature of management contracts with MIME outlining
    service delivery milestones.  Good performance will be rewarded with
    additional operational autonomy for the waterworks.

    ¶13.  The donor community has played a significant role in achieving
    incremental improvements in water supply and sanitation coverage in
    Cambodia.  The World Bank has funded two major projects since 1998.
    From 1998 to 2004 the Cambodia Urban Water Supply Project was
    supported by a $31 million loan from the World Bank to improve
    infrastructure in Phnom Penh and Sihanoukville.  In addition to
    service expansion, the project supported a revolving fund for
    increasing connections to the poor and supported national policy
    development for both urban and rural water supply.  The Provincial
    and Peri-Urban Water and Sanitation Project is a follow-on program
    funded with a $19.9 million loan from the World Bank primarily to
    assist Phnom Penh and other provincial centers with extension of
    their management responsibility to peri-urban areas of the province.
     This program is planned to continue through 2008 and utilizes
    output based aid (OBA) approaches for certain project elements and
    is intended to support policy reform on tariffs and subsidies and
    public-private partnerships.  The Water Supply and Sanitation
    Program (WSP) of the World Bank continues to operate in Cambodia
    supporting rural water supply policy implementation and awareness
    raising activities related to both water and sanitation.

    ¶14.  The ADB has also supported development of the water and
    sanitation sector in Cambodia with various loan and grant packages
    to the RGC.  From 1997 to 2003, the Phnom Penh Water Supply and
    Drainage project was supported by a $18 million loan from the ADB
    and focused on master planning and infrastructure development.  An
    additional $18 million loan was issued to support the Rural Water
    Supply and Sanitation Project to provide both hardware and software
    support for improved water and sanitation in three provinces.  Most
    recently, in 2005, the ADB loaned $18 million for the Tonle Sap
    Rural Water Supply and Sanitation program to support improved water
    and sanitation in 5 provinces including Siem Reap.

    ¶15.  JICA has taken a very active role in water sector capacity
    building.  From 2003 through 2006, JICA has implemented a capacity
    building program to provide operations and maintenance training to
    PPWSA staff and to establish a training system that can be accessed
    by provincial waterworks staff.  JICA is presently working with MIME
    to extend capacity building success with Phnom Penh to other
    provincial cities.  Initial focus will be on Siem Reap.  In
    addition, JICA has supported implementation of a water treatment
    system in Siem Reap and rural water supply infrastructure in Kampong
    Cham province.  JBIC is also presently considering the development
    of a wastewater master plan for Phnom Penh.

    ¶16.  USAID has recently initiated activities in Cambodia under the
    Environmental Cooperation - Asia (ECO-Asia) Program.  This program
    provides technical support, small grant assistance and exchange
    support to water and sanitation service providers.  The program
    focuses assistance in five reform areas: 1) innovative models for
    expanding access to the poor, 2) increased access to innovative
    financing, 3) improved corporate governance and management by
    service providers, 4) increasing enabling conditions for water and
    sanitation services and 5) sustainable sanitation solutions.
    Specific interventions and activities in Cambodia are presently
    under consideration; however, initial discussions with program
    counterparts indicate that the ECO-Asia program will focus on
    sustainable sanitation in Phnom Penh and improved corporate
    governance in Siem Reap.  Additionally, PPWSA will serve as a mentor
    for the regional service provider twinning program which aims to
    catalyze service reform through facilitated programs and sustained
    relationships between Asian utilities or service providers.
    Finally, the ECO-Asia program will consider support to the
    development of a Cambodian Waterworks Association which would serve
    as a national platform for sharing experience and best practices and
    would feed into the Southeast Asia Water Utilities Network (SEAWUN)
    or similar regional association.

    USG Engagement
    --------------

    ¶17.  The PPWSA is a recognized model water service provider in Asia.
     Achievements of the PPWSA can serve as the foundation for urban
    water service delivery reform across Cambodia.  Capacity building
    programs of the World Bank and JICA will help to replicate
    successful service delivery in Siem Reap and other provincial
    cities.  In coordination with these programs, additional USG support
    is recommended to support priority water service delivery issues not
    yet addressed including sustainable models for servicing the urban
    poor and extension of service to peri-urban areas.  Given adequate
    resources, USAID's ECO-Asia program is well-positioned to provide
    technical assistance to service provider reform and to facilitate
    twinning and mentoring programs between PPWSA and other provincial
    waterworks.  Additional support to the establishment of a Cambodia
    Waterworks Association is recommended in order to catalyze the water
    sector reform agenda, create a platform for professional exchange
    and best practice sharing and support water sector professional
    development and regional exchange.

    ¶18.  Access to improved water supply in rural areas is very limited
    in Cambodia. Lack of government regulation and intervention in rural
    communities has fostered a private sector service model in many
    areas which can be used as the basis for service expansion. Further
    USG engagement should focus on supporting a policy and regulatory
    framework which promotes expansion of service by private sector
    suppliers while safeguarding residents from overpricing and poor
    service quality. Development of minimum service standards for
    service delivery and support to efforts to establish a regulatory
    body for water service providers is recommended. In addition,
    development and implementation of financing mechanisms, including
    water revolving funds, accessible to private water service providers
    is necessary to support capital investments in service expansions.

    ¶19.  There is widespread need for addressing sanitation conditions
    in Cambodia.  However, sanitation system sustainability must be
    addressed prior to implementation.  Further engagement of the USG
    should focus on building business models for sanitation service
    delivery where sustainable revenue streams meet or exceed
    operational costs.  Small to medium-scale decentralized treatment
    approaches are effective in addressing priority community issues.
    These systems have the further advantage of being generally more
    manageable than larger centralized treatment plants in terms of
    financing and operations. Decentralized systems address the
    immediate need for treatment capacity in priority areas and help to
    build local capacity for sustainable operations of sanitation
    systems.  USAID's ECO-Asia program plans one sustainable sanitation
    pilot activity in Cambodia.  Additional USG engagement to extend the
    capacity and impact of participatory, community-based, decentralized
    sanitation solutions is recommended.

    ¶20.  The ADB and other development lending agencies have experienced
    difficulty in providing small borrowers access to financing for
    small to medium sized investments (less than $5 million).  A
    notional idea to develop a "multi-tranche" financing mechanism has
    been raised by the ADB to allow smaller borrowers, meeting certain
    performance and credit-worthiness criteria to take small loans
    through a larger line of credit issued to the national government.
    In the case of Cambodia, the USG could assist the ADB in developing
    the lending criteria and framework for a multi-tranche financing
    mechanism for water and wastewater infrastructure development.
    Further support through a capacity building program should then be
    focused on helping Cambodian waterworks to achieve requisite
    criteria for borrowing via the multi-tranche financing mechanism.

    ¶21.  All water and sanitation development investments by the USG
    should be performed within an integrated water resources management
    framework.  Economic growth and urbanization in Cambodia are
    increasing pressures on demand and affecting water quality.
    Individual activities should be designed and implemented with
    awareness of the wider impact on water resources management,
    including upstream and downstream needs and uses.  Special attention
    should be given to water conservation and demand-side management.

    MUSSOMELI

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