Existing Solutions

full cost recovery, Vietnam, decentralization, management skills, credit line

financial

AFD (Agence Française de Développement) and the Ministry of Finance of the Socialist Republic of Vietnam (MoF) have entered a credit facility agreement and a grant agreement on October, 2007, for the financing of a program devoted to Small and Medium Towns Water Supply in the Mekong Delta Region.

The Program’s rationale is aligned with the strategy of the Government of Vietnam (GoV) in the urban water supply sector, which entails aspects pertaining to (i) an overall increase in water supply coverage and (ii) institutional and economic improvements to the sector via notably decentralization, strengthening of the capabilities of Provincial and Local Water Supply Companies in general (PWSCs), (iii) and the progressive application of full cost recovery (FCR) principles.

The Program falls within the institutional and financial framework set up by the Government regarding the financing of investments in favour of small and medium towns and the utilization of ODA funds, which encompasses inter alia aspects such as the role assigned to the Vietnam Development Bank (VDB) as well as the terms and conditions applicable to end-borrowers benefiting from the AFD-supported Program.

AFD funds are channelled from GoV to the PWSCs through VDB. The financial agreement between the GoV and the AFD is a loan, however the subsequent transfer from the GoV to the VDB is a grant  and  the transfers from VDB to PWSC’s are  loans too.

The solution is being implemented in Small and Medium Towns in the Mekong Delta Region (Vietnam).

AFD (Agence Française de Développement), the Ministry of Planning and Investments and the Ministry of Finance of the Socialist Republic of Vietnam (MoF) were the stakeholder’s drivers of the program.

Vietnam Development Bank and the PWSCs have implemented the solution at the local level. 

The first tenders for works are being launched by the Provincial Water Companies

How can donors design and finance investments schemes benefiting to water supply of small and medium towns and allowing the increase of the access to safe drinkable water and sanitation?

How can local authorities access to the financial resources they need to develop water supply and sanitation services?

How can local authorities and water operators access to the financial resources they need, especially those available in the commercial banking sector, to develop water supply and sanitation services?

The Program contributes to fund water supply facilities, but also assisting PWSCs gain improved management skills, financial autonomy and credit-worthiness, vis-à-vis VDB in particular and in a broader perspective vis-à-vis the banking sector. Efficiency and potential for replication are major aims of the Program.

The Program also focuses on two logics, namely: (a) strengthening the skills of key players by technical assistance to the provincial water companies, and (b) increasing the access to safe water supply in small and medium towns in the Mekong Delta Region.

The technical assistance includes financial management capacity building for the Vietnam Development Bank, which hosts the specific financial window associated to the program and delivered also long term impacts.

Number of loans allocated by VDB to local stakeholders

Number of people having access to water and sanitation services

Number of people having an improved quality of services

Production of safe drinkable water 

This solution could be replicated in any country where the decentralization of the Water and Sanitation competences is ongoing.

This solution aims to make the water and sanitation sector attractive vis-à-vis private sector and development banks.

Public authorities willing to increase the creditworthiness of the water sector and to raise interest of the banking sector in this water sector.

Donors willing to implement funding schemes that are  programme approach driven.

 A key player of the local banking sector must be interested and strongly involved. A funding (grant or equivalent) must be available to support the local water companies and assist them in meeting the banking sector standards and expectations

 The connection to a water revolving fund or equivalent would help make the process sustainable

Specificity in Vietnamese context remains the important interferences of the Provincial People Committees, slowing down sometimes the investment cycle. This fact should not be ignored in the implementation of a credit line.

This solution has also shown that a credit line might be an adequate solution to increase the investment in water and sanitation sector, especially at the local level.

What tips and guidance (dos and don’ts) would you give to others interested in applying this solution in their own context?*

 Setting the initial Program operation manual with the local banking partner might be time consuming (more than one year in the present case).

 First test the scheme with autonomous and financially performing water supply companies only, with water supply projects only, then with sanitation projects

 What is the minimum investment necessary (in terms of human resources, time, energy, infrastructure, financial resources, political will, etc.) in order to effectively implement this solution?*

 To be tailor sized

 What are the main factors of success that you wish to emphasize?*

Potential creditworthiness of the water operators, huge investments needs, interest on the side of the banking sector, political support at the highest level

Bertrand Clochard, Watsan project leader, AFD, clochardb@afd.fr

Céline Gilquin, Watsan project leader, AFD, gilquinc@afd.fr