for official use only report no: pad2896€¦ · component 2. capacity building, institutional...

FOR OFFICIAL USE ONLY Report No: PAD2896

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF EURO 26.3 MILLION (US$30 MILLION EQUIVALENT)

AND A PROPOSED SCALE UP FACILITY CREDIT

IN THE AMOUNT OF EURO 42.1 MILLION

(US$48 MILLION EQUIVALENT)

TO THE KINGDOM OF LESOTHO

FOR A

LESOTHO LOWLANDS WATER DEVELOPMENT PROJECT – PHASE II

April 25, 2019

Water Global Practice Africa Region

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

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CURRENCY EQUIVALENTS

(Exchange Rate Effective April 1, 2019)

Currency Unit = Lesotho Maloti (LSL)

US$1 = LSL 14.02

US$ 1 = Euro US$ 1 =

0.87581012 SDR 0.7153

FISCAL YEAR

January 1 – December 31 ABBREVIATIONS AND ACRONYMS

AC Asbestos Cement

AfDB African Development Bank

APL Adaptable Program Loan

CERC Contingent Emergency Response Component

CERM Contingent Emergency Response Manual

CoW Commissioner of Water

CPF Country Partnership Framework

DHS Demographic and Health Survey

DLI Disbursement-linked Indicator

DLR Disbursement-linked Result

DRWS Department of Rural Water Supply

DWA Department of Water Affairs

EFR Environmental Flow Rate

EIB European Investment Bank

EIRR Economic Internal Rate of Return

ESIA Environmental and Social Impact Assessment

ESMF Environmental and Social Management Framework

ESMP Environmental and Social Management Plan

EU European Union

FM Financial Management

GDP Gross Domestic Product

GoL Government of Lesotho

GRM Grievance Redress Mechanism

IBNET International Benchmarking Network for Water and Sanitation Utilities

IFA Instream Flow Assessment

IFI International Finance Institution

IFR Instream Flow Rate

IHME Institute for Health Metrics and Evaluation

IMF International Monetary Fund

IPF Investment Project Financing

JMP Joint Monitoring Project

KPI Key Performance Indicator

LBWSA Lesotho Bulk Water Supply Agency

LEWA Lesotho Electricity and Water Authority

LHDA Lesotho Highlands Development Authority

LHWP Lesotho Highlands Water Project

LLWDP Lesotho Lowlands Water Development Project

LLWSS Lesotho Lowlands Water Supply Scheme

LLWSSU Lesotho Lowlands Water Supply Scheme Unit

LNDC Lesotho National Development Corporation

LRWSP Lowlands Rural Water Supply and Sanitation Project

LTWSS Long-Term Water and Sanitation Strategy

M&E Monitoring and Evaluation

MDWSP Metolong Dam and Water Supply Program

MLG Ministry of Local Government and Chieftaincy Affairs

MoDP Ministry of Development Planning

MoF Ministry of Finance

MoH Ministry of Health

MoW Ministry of Water Affairs

MSME Micro, Small, Medium Enterprises

NPV Net Present Value

NRW Nonrevenue Water

O&M Operation and Maintenance

PAP Project Affected Person

PDO Project Development Objective

PFM Public Financial Management

PFMRAP Public Financial Management Reform Action Plan

PIA Paleontological Impact Assessment

PIU Project Implementation Unit

PMC Project Management Consultant

POE Panel of Experts

POM Project Operational Manual

PPSD Project Procurement Strategy for Development

PRAMS Procurement Risk Assessment and Management System

PS Principal Secretary

RAP Resettlement Action Plan

RPF Resettlement Policy Framework

SACU Southern African Customs Union

SADC Southern African Development Community

SADP Smallholder Agriculture Development Program

SC Steering Committee

SCADA Supervisory Control and Data Acquisition

SS Suspended Solids

STEP Systematic Tracking of Exchanges in Procurement

TA Technical Assistance

TOR Terms of Reference

UNICEF United Nations Children’s Fund

WASCO Water and Sewerage Company

WASH Water, Sanitation, and Hygiene

WATSAN Water and Sanitation

WHO World Health Organization

WSIP Water Sector Improvement Project

WSS Water Supply and Sanitation

Regional Vice President: Hafez M. H. Ghanem

Country Director: Paul Noumba Um

Senior Global Practice Director: Jennifer Sara

Practice Manager: Catherine Signe Tovey

Task Team Leader: Sanyu Lutalo

The World Bank Lowlands Water Development Project (P160672)

TABLE OF CONTENTS

DATASHEET ................................................................................. Error! Bookmark not defined.

I. STRATEGIC CONTEXT ...................................................................................................... 8

A. Country Context ............................................................................................................................ 8

B. Sectoral and Institutional Context ................................................................................................ 9

C. Relevance to Higher Level Objectives ......................................................................................... 13

II. PROJECT DESCRIPTION .................................................................................................. 15

A. Project Development Objective .................................................................................................. 15

B. Project Components ................................................................................................................... 15

C. Project Beneficiaries ................................................................................................................... 18

D. Results Chain ............................................................................................................................... 20

E. Rationale for World Bank Involvement and Role of Partners ..................................................... 22

F. Lessons Learned and Reflected in the Project Design ................................................................ 22

III. IMPLEMENTATION ARRANGEMENTS ............................................................................ 23

A. Institutional and Implementation Arrangements ....................................................................... 23

B. Results Monitoring and Evaluation Arrangements ..................................................................... 24

C. Sustainability ............................................................................................................................... 25

IV. PROJECT APPRAISAL SUMMARY ................................................................................... 25

A. Technical and Economic & Financial Analysis ............................................................................. 25

B. Fiduciary ...................................................................................................................................... 29

C. Safeguards ................................................................................................................................... 31

V. KEY RISKS ..................................................................................................................... 38

A. Risk Summary Table .................................................................................................................... 38

B. Overall Risk Rating and Explanation of Key Risks........................................................................ 38

VI. RESULTS FRAMEWORK AND MONITORING ................................................................... 41

ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN ................................... 57

ANNEX 2: DETAILED PROJECT DESCRIPTION ......................................................................... 63

ANNEX 3: DISBURSEMENT LINKED INDICATORS (DLIS), DISBURSEMENT ARRANGEMENTS AND VERIFICATION PROTOCOLS .................................................................................................. 75

ANNEX 4: ECONOMIC AND FINANCIAL ANALYSIS ................................................................. 83

ANNEX 5: FIDUCIARY ASPECTS - FINANCIAL MANAGEMENT, DISBURSEMENTS AND PROCUREMENT ................................................................................................................... 87

ANNEX 6 MAP OF LESOTHO ................................................................................................. 94


Page 1 of 94

DATASHEET

BASIC INFORMATION BASIC_INFO_TABLE

Country(ies) Project Name

Lesotho Lesotho Lowlands Water Development Project - Phase II

Project ID Financing Instrument Environmental Assessment Category

P160672 Investment Project Financing

A-Full Assessment

Financing & Implementation Modalities

[ ] Multiphase Programmatic Approach (MPA) [✓] Contingent Emergency Response Component (CERC)

[ ] Series of Projects (SOP) [ ] Fragile State(s)

[✓] Disbursement-linked Indicators (DLIs) [ ] Small State(s)

[ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country

[ ] Project-Based Guarantee [ ] Conflict

[ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster

[ ] Alternate Procurement Arrangements (APA)

Expected Approval Date Expected Closing Date

16-May-2019 28-Mar-2024

Bank/IFC Collaboration

No

Proposed Development Objective(s)

The Proposed Development Objectives are to: (a) increase water availability and access to improved water supply services in two priority zones; and (b) improve technical and financial performance of WASCO.

Components

Component Name Cost (US$, millions)

The World Bank Lesotho Lowlands Water Development Project – Phase II (P160672)

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Component 1. Water Supply Investments in Zones 2 and 3 68.30

Component 2. Capacity Building, Institutional Strengthening and Project Management 12.40

Component 3. WASCO Performance Improvements 5.10

Component 4. Contingent Emergency Response Component 0.00

Organizations

Borrower: Ministry of Water Affairs - Commission of Water

Implementing Agency: Lowlands Unit

PROJECT FINANCING DATA (US$, Millions)

SUMMARY-NewFin1

Total Project Cost 85.80

Total Financing 85.80

of which IBRD/IDA 78.00

Financing Gap 0.00

DETAILS-NewFinEnh1

World Bank Group Financing

International Development Association (IDA) 78.00

IDA Credit 78.00

Non-World Bank Group Financing

Counterpart Funding 7.80

Borrower/Recipient 7.80

IDA Resources (in US$, Millions)

Credit Amount Grant Amount Guarantee Amount Total Amount

National PBA 30.00 0.00 0.00 30.00

Scale-up Facility (SUF) 48.00 0.00 0.00 48.00


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Total 78.00 0.00 0.00 78.00

Expected Disbursements (in US$, Millions)

WB Fiscal Year 2019 2020 2021 2022 2023 2024 2025

Annual 0.00 4.88 9.41 17.13 32.02 11.45 3.12

Cumulative 0.00 4.88 14.29 31.42 63.44 74.88 78.00

INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas

Water

Climate Change and Disaster Screening

This operation has been screened for short and long-term climate change and disaster risks

Gender Tag

Does the project plan to undertake any of the following?

a. Analysis to identify Project-relevant gaps between males and females, especially in light of country gaps identified through SCD and CPF

Yes

b. Specific action(s) to address the gender gaps identified in (a) and/or to improve women or men's empowerment

Yes

c. Include Indicators in results framework to monitor outcomes from actions identified in (b) Yes

SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT)

Risk Category Rating

1. Political and Governance ⚫ Substantial

2. Macroeconomic ⚫ Substantial

3. Sector Strategies and Policies ⚫ Moderate

4. Technical Design of Project or Program ⚫ Substantial


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5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial

6. Fiduciary ⚫ Substantial

7. Environment and Social ⚫ Substantial

8. Stakeholders ⚫ Moderate

9. Other

10. Overall ⚫ Substantial

COMPLIANCE

Policy Does the project depart from the CPF in content or in other significant respects?

[ ] Yes [✓] No

Does the project require any waivers of Bank policies?

[ ] Yes [✓] No

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 ✔

Performance Standards for Private Sector Activities OP/BP 4.03 ✔

Natural Habitats OP/BP 4.04 ✔

Forests OP/BP 4.36 ✔

Pest Management OP 4.09 ✔

Physical Cultural Resources OP/BP 4.11 ✔

Indigenous Peoples OP/BP 4.10 ✔

Involuntary Resettlement OP/BP 4.12 ✔

Safety of Dams OP/BP 4.37 ✔

Projects on International Waterways OP/BP 7.50 ✔

Projects in Disputed Areas OP/BP 7.60 ✔

Legal Covenants


Page 5 of 94

Sections and Description By no later than one (1) month after the Effective Date, the Recipient shall establish and thereafter maintain, at all times during the implementation of the Project, the Project Steering Committee (PSC), in form and substance satisfactory to the Association. The PSC shall be responsible for providing overall strategic guidance on implementation of the Project, including providing oversight and guidance, facilitating inter-institutional coordination, resolving legal, policy and operational bottlenecks and informing on progress and challenges. To this end, the PSC will be chaired by the Principal Secretary of the MOW or any authorized representative and will be comprised of high-level representatives of relevant ministries, WASCO, non-government organizations and others as deemed relevant by the Recipient. (Schedule 2 Section I A. 2 of the Financing Agreement)

Sections and Description The Recipient shall, at all times during the implementation of the Project, coordinate implementation of the Project through the MOW. Specifically, the COW shall have full responsibility for the implementation and management of the Project through a Project implementing unit. To this end, by no later than fifteen (15) days after the Effective Date, the Recipient shall establish and thereafter maintain, at all times during the implementation of the Project, the Project Implementing Unit with qualified and experienced staff in adequate numbers, terms of reference, resources and functions, satisfactory to the Association, in accordance with the Project Operational Manual, including, but not limited to, a Project manager, financial management specialist, procurement specialist, and safeguard specialists. (Schedule 2 Section I A. 1 (a) of the Financing Agreement)

Sections and Description For purposes of implementing Part C (Component 3) of the Project, the Recipient shall cause WASCO to establish and thereafter maintain, at all times during the implementation of Part C of the Project, an implementation team headed by a Project coordinator and with qualified and experienced staff in adequate numbers, terms of reference, resources and functions, satisfactory to the Association, in accordance with the Project Operational Manual. (Schedule 2 Section I A. 3 of the Financing Agreement)

Sections and Description Prior to awarding any contract regarding the design or civil works related to activities under Part A.1 of the Project, the Recipient shall carry out the following studies, assessments and plans in a manner satisfactory to the Association: (a) a baseline study of the upper Hlotse River that would be affected by the water releases from Katse Dam; (b) (i) a new instream flow requirement (IFR) calculation (using the 2008 instream flow requirement report on the conditions in the Hlotse River as benchmark), taking into account ecosystem services and downstream uses/users of the intake, current and future uses of the Hlotse River; (ii) a management plan and an assessment on how the new IFR calculation will impact downstream users; (iii) a determination of impacts that could not be avoided or measures needed to deal with temporary impacts and/or extreme conditions; and (iv) a livelihood restoration plan to address any training or changes in practice required by changed conditions and to compensate for losses and restore livelihoods through alternative means if necessary; (c) (i) a complete study of the phase 1 paleontological impact assessment in the areas of highest fossil potential (i.e. where bedrock outcrops at or within 2 m of the surface); (ii) the mapping of all the fossil sites; and (iii) the compilation of a chance find protocol; (d) a hydrological assessment to determine the impact of water releases from Katse Dam on the hydrology of the upper Hlotse River above the planned intake civil works, based on which mitigation measures shall be developed;


Page 6 of 94

(e) an impact assessment of Katse Dam water releases on the biota (fish, invertebrates) of the upper Hlotse River; and (f) a water quality modelling on the impact of Katse Dam’s water on the water quality in the Hlotse River. (Schedule 2 Section I E 4. (a), (b), (c), (d), (e), and (f))

Sections and Description By no later than one (1) month after the Effective Date, the Recipient shall cause DRWS, DWA and WASCO to second and thereafter maintain, at all times during the implementation of the Project, qualified and experienced staff in adequate numbers and with terms of reference satisfactory to the Association. (Schedule 2 Section I A. 1 (b) of the Financing Agreement)

Sections and Description The Recipient shall ensure that no civil works shall commence until all resettlement measures set forth in any resettlement action plan(s) shall have been fully executed, including the full payment of compensation prior to displacement and/or the provision of relocation assistance to all Affected Persons. (Schedule 2 Section I E 2. (a)

Conditions

Type Description

Disbursement No withdrawals shall be made under Categories (3)(a) and (b) unless and until the Recipient

shall have furnished evidence satisfactory to the Association showing that: (i) the Subsidiary

Agreement referred to in Section I.B of Schedule 2 of the Financing Agreement; (ii) legal

opinions from the Recipient and WASCO have been issued stating that the Subsidiary

Agreement has been duly executed, authorized or ratified by the Recipient and WASCO and

is legally binding upon the Recipient and WASCO in accordance with its terms; and (iii)

WASCO has set up the implementation team referred to in Section I.A.3 of Schedule 2 of the

Financing Agreement. (Schedule 2: Section III 2 (c)) Type Description

Disbursement No withdrawal shall be made:under Category (1) (Component A 1), unless and until the

Recipient shall have furnished evidence satisfactory to the Association showing that all the

baselines studies and assessments referred to in Section I.E.4 of Schedule 2 to the Financing

Agreement have been completed in a manner satisfactory to the Association (Schedule 2

Section III 2(b)) Type Description

Disbursement No withdrawal shall be made under Category (3)(b) unless and until the Recipient shall have:

(i) complied with the additional instructions set forth in the Disbursement and Financial

Information Letter, including submission to the Association of the applicable financial reports


Page 7 of 94

evidencing the incurrence of the expenditures during the respective DLI Period(s) up to the

date for which payment is requested; and (ii) furnished evidence satisfactory to the

Association, in accordance with the DLI Verification Protocol, showing that the DLI Targets

for the respective DLI Period(s) for which payment is requested have been achieved.

(Schedule 2 Section III 2d) of the Financing Agreement) Type Description

Disbursement No withdrawal shall be made for payments made prior to the Signature Date, except that

withdrawals up to an aggregate amount not to exceed €4,500,000 may be made for

payments made prior to this date but on or after January 1, 2019, for Eligible Expenditures

under Category (2). (Schedule 2 Section III 2(a) of the Financing Agreement) Type Description

Disbursement No withdrawal shall be made under Category (4), for Emergency Expenditures, under Part D

(Component 4) of the Project, unless and until the Association is satisfied, and notified the

Recipient of its satisfaction, that all of the following conditions have been met in respect of

said activities: (i) the Recipient has determined that an Eligible Crisis or Emergency has

occurred, has furnished to the Association a request to include said activities in the CERC Part

in order to respond to said Eligible Crisis or Emergency, and the Association has agreed with

such determination, accepted said request and notified the Recipient thereof; (ii) the

Recipient has prepared and disclosed all safeguards instruments required for said activities,

and the Recipient has implemented any actions which are required to be taken under said

instruments, all in accordance with the provisions of Section I.F of Schedule 2 to this

Agreement; (iii) the Recipient’s Coordinating Authority has adequate staff and resources, in

accordance with the provisions of Section I.F of this Schedule 2 to this Agreement, for the

purposes of said activities; and (iv) the Recipient has adopted an CERC Operations Manual in

form, substance and manner acceptable to the Association and the provisions of the CERC

Operations Manual remain or have been updated in accordance with the provisions of

Section I.F of this Schedule 2 so as to be - appropriate for the inclusion and implementation

of said activities under the CERC Part. (Schedule 2 Section III 2(e) of the Financing

Agreement)


Page 8 of 94

I. STRATEGIC CONTEXT

A. Country Context 1. The Kingdom of Lesotho is a small landlocked country in southern Africa with a population of about two million people. With a per capita gross domestic product (GDP) of US$1,020, Lesotho is one of the poorest countries in the region. An estimated 57 percent of the population lives below the national poverty line and 34 percent falls below the extreme poverty line—with food expenditures below the minimum requirements. Lesotho generates income mainly by exporting textiles and diamonds. It is a member of the Southern African Customs Union (SACU), the Southern African Development Community (SADC), and the Common Monetary Area. GDP growth was 2.5 percent in 2016/17, down from a 4.5 percent average over the previous five years. Lesotho is facing a tough fiscal and economic outlook given a sharp decline in SACU revenues and high current account deficits, which require substantial fiscal adjustment to restore macroeconomic stability. In addition, political instability, climate change vulnerability, and high rates of HIV/AIDS are significantly affecting Lesotho’s potential for growth.

2. Lesotho may be divided into three geographic regions: the Lowlands, which are home to about 75 percent of the country’s population, are located in the western part of the country following the southern banks of the Mohokare-Caledon River and in the Senqu river valley; the Highlands, which are formed by the Drakensberg and Maloti mountain ranges, are located in the east and central parts of the country; and the Foothills, which form a divide between the Lowlands and the Highlands. The country is divided into 10 administrative districts. Maseru, the capital located in the western part of the Lowlands, is the largest district with a population of about 520,000 people, followed by Leribe district located in the northern part of the Lowlands with a population of about 340,000 people. Leribe is home to Maputsoe, Lesotho’s second largest town after Maseru, as well as Hlotse, the district capital, with populations of about 55,000 and 39,000 people, respectively.

3. The industrial sector has made significant contributions to Lesotho’s economy due to the influx of international investors following the signing of the African Growth and Opportunity Act in 2000.1 In recent years, the textile-apparel industry, which is one of the country’s largest employers, has stagnated reportedly due to water shortages, inadequate transport connectivity, and trade challenges, which have resulted in the closure of many factories, leaving vacant industrial parks (factory shells). This has led to the decline of the sector’s contribution to the GDP from 20.1 percent in 2004 to 10.8 percent in 2013.2 Companies have resorted to carrying out water consuming processes in South Africa, increasing operational costs and reducing profits. The Lesotho National Development Corporation (LNDC), a parastatal agency responsible for facilitating industrial development, has been having difficulty to find investors to occupy the factory shells, indicating unreliable water supply as one of the main issues. The LNDC reported the closure of several textile industries, leaving many people jobless in the area. Maputsoe is home to some industries of national importance, including a large number of textile and apparel industries and a milling company that produces mealie meal for the entire country. In total, textile firms located in the Maputsoe and Nyenye industrial estates are estimated to have total sales of over US$144 million per year and employ over 13,000 people. This area has experienced rapid and unforeseen industrial and population growth. The area is facing critical water supply challenges with only 40–50

1 African Cotton and Textiles Industries Federation Report, 2006. 2 Lesotho Transport and Infrastructure and Connectivity Project Appraisal Document (P155229)

https://en.wikipedia.org/wiki/Caledon_River

https://en.wikipedia.org/wiki/Senqu_River

https://en.wikipedia.org/wiki/Drakensberg

https://en.wikipedia.org/wiki/Maloti_Mountains

https://en.wikipedia.org/wiki/District


Page 9 of 94

percent of its water demand being met. Likewise, factory shells in other parts of the Lowlands such as Mafeteng and Mohale’s Hoek have experienced simultaneous closures of different industries over the past 10 years, resulting in the loss of 4,000 jobs. As textile industries are the major private employer, especially for Basotho women, their closure and resulting unemployment push many people into poverty.

B. Sectoral and Institutional Context 4. Water is one of Lesotho’s most valuable natural assets and it is central to the country’s long-term growth prospects. The water sector contributes an estimated 8 percent to Lesotho’s GDP. A large portion of this is derived from revenues associated with the Lesotho Highlands Water Project (LHWP), a multi-stage infrastructure project that facilitates the transfer of water from Lesotho’s water-rich highlands to South Africa as well as contributes to developing Lesotho’s hydropower resources.3 Recent water programs, which focus on increasing the quantity of water transferred to South Africa and exploring the possibility of transferring water to Botswana, have further reinforced water’s central role in Lesotho’s economy. Balancing water resources development for export against the national priority of improving water supply and sanitation (WSS) infrastructure and services in Lesotho—particularly in the Lowlands—is one of the key challenges for the Government of Lesotho (GoL). In addition to constraining investment and associated economic growth, lack of adequate WSS results in poor public health and environmental conditions.

5. While access to water supply services in Lesotho appears relatively high compared to peers in Sub-Saharan Africa, the reliability and quality of services remains a challenge in both rural and urban areas. About 95 percent of urban and 73 percent of rural households have access to an improved source of drinking water. However, a 2017 study showed that just 8 percent of households reported their water source reliable. Previous studies in 2004 and 1995 similarly found that households reported having unreliable primary water sources.4 Moreover, rising industrial demand for water, rapid urbanization growth in and around the Maseru Metropolitan Area and other industrial towns such as Maputsoe, and dilapidated infrastructure have steadily increased the pressures on WSS services. Maputsoe currently relies heavily on the Water and Sewerage Company (WASCO) and private sector supplied tanker water mostly from the Teyateyaneng supply.

6. Access to improved sanitation services in Lesotho is low. Only 44 percent of the total population has access to improved sanitation solutions (46 percent and 43 percent coverage in urban and rural areas, respectively).5 About 30 percent of households do not have access to any toilet facilities and therefore practice open defecation.6 Access to reticulated sewerage is estimated at just 4 percent of the population

3 An average of around US$20–30 million (4.8 percent of GDP) per year in royalties is received from the LHWP. This is expected to increase with the development of Phase II of the LHWP. It includes provisions for augmenting water transfer to South Africa through construction of a new dam and transfer tunnel, along with a hydropower component to generate electricity for the benefit of Lesotho. 4 Final Draft Socio-Economic Review and Update Report for the Lesotho Lowlands Water Supply Scheme, 2017. 5 2017 United Nations Children’s Fund (UNICEF)/World Health Organization (WHO) Joint Monitoring Project (JMP) Report. The 2014 Demographic and Health Survey (DHS) provides slightly higher numbers; 49 percent access to improved sanitation in urban areas and 51 percent access in rural areas, with 50.9 percent total. 6 Improved drinking water source and improved sanitation coverage data are from the UNICEF/WHO JMP 2017; https://www.wssinfo.org/fileadmin/user_upload/resources/Lesotho.xls


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in urban areas7 and mainly in the central business districts of Maseru and larger towns such as Maputsoe and Hlotse. While some aggregated data on sanitation are available at the national level in Lesotho, many of the districts and local governments lack reliable disaggregated data or comprehensive diagnostics on the sanitation situation, constraining adequate sub-sectoral planning.

7. Recent evidence shows that poor access to water and sanitation (WATSAN) in early childhood, which is associated with an increase in the incidence of undernutrition and diarrheal disease in the short term, can have important consequences in the long term—both to the individual and society. These include a high risk of stunting, impaired cognitive development, lower rates of school attendance, reduced human capital attainment, and a higher risk of chronic disease and health problems in adulthood.8 Thus, inequities in access to water, sanitation, and hygiene (WASH) and other services early in the life of a child further the intergenerational transmission of poverty. An estimated 33 percent of children under five years in Lesotho are stunted, with the number of stunted children in Leribe district, which comprises part of the proposed project area, estimated at about 31 percent. Diarrhea accounts for 25 percent and is the leading cause of death of children under five years in Lesotho; of these, an estimated 65 percent is attributable to poor sanitation and 73 percent is attributable to unsafe water supply.9.

8. The effects of an increasingly unpredictable and variable climate have significant implications for Lesotho’s water security and economic prospects. According to the Lesotho Water Security and Climate Change Assessment Report,10 in the absence of augmentation measures, demand for domestic and industrial water supply in the country is not reliably met under a series of historic and future climate scenarios. Total unmet water demands are expected to reach 40 percent by 2050, with demands for industry projected at almost 60 percent. Moreover, Lesotho remains vulnerable to regular and recurrent floods and droughts. The floods in 2011 were the largest on record since the 1930s, while the drought in 2015–16 is the driest recorded to date. Climate projections specifically suggest increased annual temperatures by 0.4-4.7°C, late rains, and changes in rainfall patterns for the northern Lowlands area, which includes Leribe district (Maputsoe and Hlotse towns). Lesotho is particularly vulnerable to climatic events, given a combination of factors such as the high proportion of high altitude rangeland and the highly erodible soils in the Lowlands, loss of arable land from human migration to the Lowlands, high poverty levels, and competition between crops and livestock for land. Existing climate hazards pose substantial risk to water infrastructure and service delivery.

9. Responsibility for management of the WSS sector is fragmented among several entities. The Ministry of Water Affairs (MoW) is responsible for policy guidance and oversight of sector institutions and the Office of the Commissioner of Water (CoW), under the MoW, is responsible for developing national water strategies and plans for coordinating water management activities. There are several relevant departments, including the Department of Water Affairs (DWA), which is responsible for monitoring, assessing, and allocating water resources; the Department of Rural Water Supply (DRWS), responsible for supporting local governments and communities in providing WSS services in rural areas; and the Lesotho

7 2014 Lesotho DHS Report. 8 Victora, C. G., de Onis, M., Curi Hallal, P., Blössner, M., and R. Shrimpton. 2010. Worldwide Timing of Growth Faltering: Revisiting Implications for Interventions. 9 Institute for Health Metrics and Evaluation (IHME).2016. GBD Compare Data Visualization. Seattle, WA: IHME, University of Washington. Available from http://vizhub.healthdata.org/gbd-compare (accessed October 25, 2018). 10 World Bank. 2016. “Lesotho Water Security and Climate Change Assessment.” World Bank, Washington, DC.


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Lowlands Water Supply Scheme Unit (LLWSSU), responsible for overseeing planning and development of the Lesotho Lowlands Water Supply Scheme (LLWSS). WASCO is a government-owned utility responsible for water and sewerage services in urban areas and the operation of bulk water infrastructure. Recently, WASCO has taken on an additional role as service provider in some peri-urban and rural growth centers.11 Key responsibilities for urban and rural sanitation are split between WASCO and the DRWS, respectively, as well as the Ministry of Health (MoH), which is responsible for hygiene and sanitation promotion. WASCO is responsible for waterborne reticulated sewerage and wastewater treatment plants mainly in urban centers. For on-site sanitation, WASCO’s responsibility relates to emptying septic tanks and latrines in its service areas and disposing of sludge and septage at sewage treatment works. Investment and operation and maintenance (O&M) of household on-site systems are the responsibility of the household.

10. Considering the challenges facing the WSS sector, the GoL articulated an ambitious vision (Lesotho Vision 2020) to provide 100 percent of the population with improved WSS services and to build a water security platform that spurs competition and job creation. The GoL’s National Strategic Development Plan, which focuses on inclusive growth and the development of key infrastructure, identifies the rehabilitation and development of WSS infrastructure as a priority area for promoting economic growth and reducing poverty.

11. To address the water shortages in the Lowlands, the GoL established the LLWSSU in 2002, under the auspices of the office of the CoW, and launched the LLWSS in 2004 to address water supply needs in the Lowlands. The LLWSS’s objective is to address water security challenges and to improve water supplies for domestic, institutional, and industrial use in the Lowlands’ urban, peri-urban, and other demand centers (cluster of villages with populations of 2,500 people and more). The entire LLWSS aims to benefit a population of 1.1 million, which is projected to increase to 2.0 million by 2040.

12. The GoL, with support from the World Bank and other development partners, has since embarked on several investment projects in the Lowlands, including the Water Sector Improvement Project (WSIP) Adaptable Program Loan (APL) Phase II - Metolong Dam and Water Supply Project (MDWSP) (P108143), the first project under the LLWSS, and the Lowlands Rural Water Supply and Sanitation Project (LRWSP) financed by the African Development Bank.12 The WSIP was designed as a two-part APL (WSIP APL1 and WSIP APL2). WSIP APL1, approved in 2004, supported water sector reforms focused on strengthening WASCO, national water resources policies and strategies, and urban water service delivery. WSIP APL2, approved in 2009, supported the MDWSP by financing (a) the extension of a bulk water supply pipeline to the town of Teyateyaneng; (b) an environmental and social management program for the entire MDWSP; and (c) institutional strengthening and capacity building for WASCO and other national sector institutions. The WSIP APL supported the GoL in carrying out a series of sector reforms to strengthen service provision, coordination, and decentralization efforts. Key aspects of the

11 WASCO reported serving 0.51 million people in 2014/15 with 18,748,695 m3 per year through 85,131 connections. WASCO has 1.56 staff members for every 1,000 people served. Source: International Benchmarking Network for Water and Sanitation Utilities (IBNET) reports; https://www.ib-net.org/. 12 The MDWSP was financed by nine development partners (International Development Association [IDA], the Millennium Challenge Corporation, Saudi Development Fund, Organization of the Petroleum Exporting Countries Fund, Kuwait Fund, Arab Bank for Economic Development in Africa, Abu Dhabi Fund for Development, the European Investment Bank [EIB], and the African Renaissance and International Cooperation Fund of the Republic of South Africa). The MDWSP water system includes the 73 m high Metolong Dam, a water treatment plant, and a conveyance system to supply water to Maseru and adjoining urban towns.


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reforms include the 2007 Water and Sanitation Policy and the Water Act of 2008. The reforms established the current legal framework and institutional arrangements for the sector.

13. The Metolong water supply system, which was launched in 2015, provides additional treated water to a large portion of the Lowlands population located in Maseru and adjoining urban towns (Teyateyaneng, Morija, and Roma). The system is expected to meet domestic and industrial water requirements in those areas through 2050. The LRWSP is supporting a Tertiary Lines Project to provide drinking water from the Metolong Dam conveyance system as well as construction of sanitation facilities and hygiene and sanitation promotion campaigns, extending benefits of the system to rural areas in the districts of Berea and Maseru. These activities are expected to improve WSS coverage in two of eight designated water demand zones in the Lowlands. In 2014, the World Bank approved additional financing for APL2 to support, among others, the updating of detailed designs, safeguards instruments, and other studies for preparation of the next phases of the LLWSS.

14. While Lesotho’s reform efforts supported through the previous projects have resulted in some important strides to improve WSS in urban areas, challenges remain to transform WASCO into a well-performing water utility, improve WSS services in rural areas and small towns, and ensure a sustainable operation of the bulk water infrastructure. The corporatization of WASCO in 2010 and the creation of an authority (Lesotho Electricity and Water Authority [LEWA]) to regulate and enforce water and energy services brought much-needed change to the sector. WASCO reduced water losses,13 covered more operating costs and some debt service costs with tariffs,14 and widened its consumer base. Although the recipient of extensive technical assistance (TA) over the years from various donors, WASCO has yet to operationalize that support and achieve its full potential. For example, its financial statements have been routinely ‘qualified’ by independent auditors, collection rates can be improved, regulatory compliance (whether drinking water quality, effluent quality, or economic) is poor, and the sewer connection rate is low. Moreover, there appears to be a highly centralized, low-incentive culture, which needs to be addressed by a major change management initiative. The project seeks to, among other things, address the issue of the qualified financial audits through the introduction of a specific disbursement linked indicator that will focus on preparing and implementing a financial data/reporting quality improvement plan with a view to deliver an unqualified statutory audit by the end of the project.

15. To address the above challenges, the CoW developed the Long-Term Water and Sanitation Strategy (LTWSS) in 2014 and is in the process of revising the Water and Sanitation Policy and Water Act to consolidate and streamline sector roles and responsibilities related to bulk water supply and to improve service provision in rural and peri-urban areas. Following the LTWSS recommendation, the GoL started the process of establishing the Lesotho Bulk Water Supply Agency (LBWSA), which is proposed to be responsible for implementation, asset management, and O&M of bulk water systems countrywide while WASCO will continue with the O&M of the water distribution system. The Government is still considering options for an optimal structure for the LBWSA, and a roadmap for its establishment is not

13 WASCO reports the best nonrevenue water (NRW) ratios in the region when compared to data reported by utilities in Kenya, Zambia, Tanzania, Mozambique, and Rwanda. Only 8 m3/km/day (just 27.1 percent) of water is nonrevenue. WASCO also reports 100 percent metering. 14 Currently, WASCO reports being at 98.4 percent O&M cost coverage. WASCO needs to reach 150 percent to reach IBNET’s definition of full cost coverage.


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confirmed. In the meantime, WASCO remains responsible for managing the bulk potable water supply assets.

16. With the completion of the first phase of the LLWSS through the MDWSP covering Maseru and surrounding towns, the GoL has focused on preparing for the next implementation phase of the LLWSS. The LLWSS consists of five bulk water supply schemes that serve eight designated water demand zones and the area of Semonkong (Map 1)15. These zones fall into three main regions: northern, central, and southern. The MDWSP covered WSS investments in two zones (Zones 4 and 5, supplying Maseru and Teyateyaneng). The Government is exploring financing options for the next phase of the LLWSS, initially comprising four additional zones namely 2, 3, 6, and 7,16 and has received confirmation of potential funding from the European Union (EU) and European Investment Bank (EIB). The GoL’s decision to prioritize investments in Zones 2 and 3 (Maputsoe and Hlotse), Zone 6 (Mafeteng), and Zone 7 (Mohale’s Hoek) was based on the level of unmet water demand, the severe impact of droughts, and the relatively positive impact on livelihoods and economic activity. The World Bank, in view of financing limitations, further prioritized focusing on investments in Zones 2 and 3 based on their alignment with the World Bank Group’s Country Partnership Strategy outlined in its Country Partnership Framework (CPF) for FY2016–2021 17 to support Water for Growth. Thus, the World Bank will finance the proposed Lesotho Lowlands Water Development Project (LLWDP), covering these two priority zones, while the EU and EIB will finance investments in Zones 6 and 7, covering Mafeteng and Mohale’s Hoek and the surrounding areas, based on the potential to address the severe impact of droughts in those areas. The EU and EIB will finance the latter through a parallel project implemented by the same implementing agency (MoW).

C. Relevance to Higher Level Objectives 17. The proposed project is closely aligned with the World Bank Group’s Lesotho CPF for FY2016–2021. The project will directly support the CPF’s Strategic Objective 6: Improve Smallholder and Micro, Small, Medium Enterprises (MSME) Agricultural Productivity and Strategic Objective 8: Increase Water and Renewable Supply for Industrial, Agricultural, and Export Opportunities. The CPF included a water lending operation for the Lowlands to support Strategic Objectives 6 and 8 and a specific key results indicator. Both strategic objectives are under Focus Area II: Promoting Private Sector Jobs Creation. The CPF’s rationale for the operation is based on the central role water plays in Lesotho’s long-term growth and poverty reduction efforts. Supplying water in the Lowlands for domestic and industrial needs serves as an intermediate input for improving human development outcomes and private sector development. The project also contributes to the CPF’s Focus Area I: Improving Efficiency and Effectiveness of the Public Sector by strengthening the capacity of service providers (that is, WASCO, DRWS, and rural councils) and other water-related institutions to strategically plan for and invest in water infrastructure. In addition, the project design addresses cross-cutting issues included in the CPF such as the preparation of a gender gap analysis and action plan for sector institutions such as WASCO; the addition of a Contingent Emergency Response Component (CERC), given Lesotho’s vulnerability to impacts of climate change and natural

15 Map 2.1. Map of Lesotho showing distribution of water demand zones, Annex .2 16 Prioritization of the zones was based on a series of selection criteria, including service coverage, impact on economic development and jobs, and susceptibility to climate change. 17 Lesotho - Country Partnership Framework for the Period FY16–21. World Bank Group Report Number 97823-LS.


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disasters; and the use of labor-intensive procurement methods for public works to help decrease rural unemployment.

18. The project supports the achievement of the World Bank Group’s twin goals of eliminating extreme poverty and promoting shared prosperity in several ways. First, bringing higher quantities of more reliable water to households enhances beneficiaries’ quality of life by (a) reducing the time and effort—especially of women and children—to collect water, thus creating more time for other activities including livelihoods; (b) reducing the incidence of waterborne diseases caused by consumption and contact with contaminated water and associated costs to deal with the disease burden; and (c) diminishing absenteeism from work and school (especially for girls) and the associated costs, such as lost income and opportunities. In addition, investments in water infrastructure provide more reliable water to meet the huge unmet demand to support industrial growth, smallholder agriculture, and animal husbandry among other economic activities, catalyzing local development and economic activity.

19. Linkage and support to other World Bank operations. The World Bank is also playing a catalytic role to boost and diversify Lesotho’s economy by implementing projects that are interlinked with one another. The World Bank is financing an operation in agriculture, the Smallholder Agriculture Development Program (SADP) (P119432), which seeks among other things to support smallholder irrigation in selected areas in Lesotho to reduce poverty. There is a huge gap in terms of inventory and other information related to irrigation, including actual irrigable land and water requirements, and the SADP is in the process of hiring a consultant to prepare a National Irrigation Master Plan. While there is a general consensus that limited irrigation water availability affects large-scale implementation of irrigation in the project area, the current project will focus on water for potable use and industry. The LLWSS has been designed to cater to domestic and industrial demands until 2030 but the project will explore the potential of including designs for abstraction and storage for water for limited agricultural use by smallholder farmers during high season flows, to be financed through the SADC if feasible.

20. The project is aligned with the objectives and priorities of the IDA 18 Scaleup Facility (SUF), and would be financed through an IDA Credit in two portions, in the total amount of Euro 68.4 million (US$78.0 million equivalent) comprising: (i) a Credit of Euro 26.3million (US$30 million equivalent) and a Scale Up Facility of Euro 42.1 million (US$ 48 million equivalent). The project has strong potential for returns on investment and development impact given its focus on water for growth and the central role water plays in Lesotho’s long-term growth and poverty reduction efforts. In providing water potable and industrial purposes the project is expected to contribute to both human capital and economic growth in the Lowlands, including the Maputsoe area, the second largest industrial area in the country and its surrounding settlements, which are facing a significant water crisis. To ensure sustainability of water supply investment and services, the project introduces a multi-pronged approach, combining a utility facing Change Management technical assistance and the use of DLIs as incentives to promote greater efficiency and effectiveness of WASCO resulting in improved technical, financial, and commercial utility performance. The project also promotes resilience and disaster risk management awareness activities, given Lesotho’s vulnerability to climate change; and the promotion of low-carbon initiatives.


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II. PROJECT DESCRIPTION

A. Project Development Objective PDO Statement

21. The proposed development objectives are to (a) increase water availability18 and access19 to improved water supply services in two Priority Zones and (b) improve technical and financial performance of WASCO.

PDO Level Indicators

22. Achievement of the Project Development Objective (PDO) will be measured through the following indicators:

• Increased water production capacity in two priority water zones (m3 per day)

• People provided with access to improved water sources (number, of which female, rural, urban) (corporate indicator)

• People with existing connections benefitting from improved services20 (number)

• WASCO’s minimum achievement of annual, financial and technical performance improvement targets defined by LEWA21

B. Project Components 23. The project will focus on supporting water supply infrastructure investments to address water security challenges in high water demand Zones 2 and 3 of the Lowlands, comprising Maputsoe, Hlotse, and surrounding settlements with more than 2,500 people. This will contribute to increasing the availability, reliability, and access to water for domestic and industrial purposes, thus supporting economic development and public health and improving the area’s resilience to climate change impacts such as prolonged droughts. It will also support comprehensive sanitation planning22 for urban and rural areas, including identification and preparation of high priority investment plans for Maputsoe and Hlotse that could be implemented by the GoL through a separate operation. In addition, the project will support a range of sector institutions to more effectively manage their respective policy, regulatory, and service delivery mandates. There is a particular focus on improving WASCO’s financial and technical performance with the introduction of an output-based incentive system supported by a change management program. Finally, the project includes a CERC to support mitigation of sector-related risks such as major droughts,

18 Availability of water services entails improvements in overall water production capacity sufficient for zones 2 and 3 in the short to medium term, that is, up to 2030. 19 Access to improved water services encompasses both consumers accessing new services and those benefitting from improved service quality in terms of increased continuity of service. 20 Improved water supply services will be assessed in terms of the average minimum hours of service per day, with a minimum of 12 hours. 21 The description of this indicator is provided in the Results Framework. 22 While the magnitude of needs related to sanitation in Lesotho is recognized, the project in view of resource and implementation capacity limitations as well as the priority accorded to Water for Growth in the CPF has made a strategic choice to focus the investments on water supply.


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should they arise. The project will have four components summarized in the following paragraphs and presented in more detail in Annex 2.

Component 1. Water Supply Investments in Zones 2 and 3 (Euro 59.8 million (US$68.3 million equivalent), of which IDA financing is Euro 57.4 million (US$65.5 million equivalent)

24. This component will finance a program of activities designed to improve access to reliable domestic and industrial water supply services within Zones 2 and 3, specifically the towns of Maputsoe and Hlotse, and settlements and villages along the transmission pipeline route. The activities include:

(a) Construction of the bulk water supply scheme which will abstract water from the Hlotse River and transfer it to project towns in the Priority Zones; the system will include a river intake structure, source protection measures to protect the local environment and reduce the effects of flooding, and a water treatment plant;

(b) Construction of water transmission lines, reservoirs, and auxiliary facilities to take water from the Holtse River to the above-mentioned water supply scheme.

(c) Construction and rehabilitation of distribution water mains and networks in the Maputsoe and Hlotse towns and surrounding settlements, including installation of meters, household service connections, leakage reduction measures, and standpipes; and

(d) Borehole rehabilitation in Maputsoe, to be advanced into the first year of the project to deliver improved availability of water supply in response to the likely adverse impact of the ‘El Nino’; and

(e) Consultancy services for construction supervision and quality assurance of water supply infrastructure contracts, technical studies, and engineering designs.

Component 2. Capacity Building, Institutional Strengthening and Project Management (Euro 10.9 million (US$12.4 million equivalent), of which IDA financing is Euro 6.5 million (US$7.4 million equivalent)

25. This component will strengthen sector institutions, support implementation of the LLWSS, and develop a comprehensive Strategic Sanitation Plan through financing of consultancy services, systems, and equipment to support three broad categories of activities:

(a) Project management. This will include support to the Project Implementation Unit (PIU); incremental operating costs; support for a panel of dam safety experts; support for safeguards (including any additional studies as needed) and preparation, implementation, and monitoring of site-specific environmental and social safeguards for the water distribution network; and support for project communications. Support to the PIU such as office rent and utilities, salaries for PIU support staff (project team assistants, drivers, and so on) will be covered under this component through counterpart funding.

(b) Institutional strengthening support of other sector departments. This will include support to the DRWS (operational and policy support); DWA (water quality monitoring); LBWSA


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(international experiences in bulk water supply agencies); CoW (miscellaneous studies and capacity building, including review of the tariff structure to assess, among others, the bulk water tariff); LEWA (technical data quality and auditing); and Ministry of Development Planning (MoDP) (improved oversight of project implementation).

(c) Strategic Sanitation Planning TA. This will support the MoW in building upon existing policies and plans in the development of a medium-term sanitation program, based on updated sector diagnostics. The work will include preparation of master plans for select urban locations, including but not limited to Maputsoe and Hlotse, using the Citywide Inclusive Sanitation23 approach. Feasibility studies, detailed designs, and technical specifications for bidding documents will be prepared for high priority works. As applicable, Environmental and Social Management Frameworks (ESMFs), Resettlement Policy Frameworks (RPFs), Environmental and Social Impact Assessments (ESIAs), and Resettlement Action Plans (RAPs) will also be prepared. For rural sanitation, the TA will prepare sector diagnostics and detailed action plans including hygiene promotion and strategies for a more targeted nutrition-sensitive WASH approach to reduce child stunting. Finally, the TA will develop a comprehensive industrial wastewater management and regulation strategy.

Component 3. WASCO Performance Improvements (Euro 4.5 million (US$5.1 million equivalent), of which IDA financing is Euro 4.5 million (US$5.1 million equivalent))

26. This component will support WASCO in improving its performance through a mix of institutional strengthening complemented by results-based payments with disbursement dependent on verifiable achievement of targets set in three Disbursement-linked Indicators (DLIs). Credit proceeds will be on-granted to WASCO for the following activities:

(a) Institutional strengthening support to WASCO. The core of this activity comprises change management24 support to WASCO senior management and its Board of Directors to improve the culture and performance of the company. This is complemented by the DLIs which will incentivize WASCO to deliver measurable improvements in performance facilitated by change management support. Further support includes resolving issues surrounding asset valuations, preparing detailed O&M plans for project-financed infrastructure, and implementing annual customer satisfaction surveys.

(b) DLIs to incentivize WASCO. This sub-component will finance three DLIs that will incentivize WASCO to: (a) improve the quality of its technical data and thus improve management decision making and the regulatory interface with the regulatory agency, LEWA; (b) improve the quality of its financial data for improved management decision making, LEWA interface, and better statutory financial reporting; and (c) deliver improved technical and financial performance against annual targets set by LEWA. The DLIs are described in more detail in Annex 3.

23 The concept of Citywide Inclusive Sanitation is described in more detail in annex 2 under Sanitation. 24 Change management activities will support WASCO board, management, and staff in identifying and making needed organizational changes considering all aspects of water system sustainability to improve the efficiency and effectiveness of the company’s performance in achieving its service delivery mandate.

https://en.wikipedia.org/wiki/Organizational_change


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• The first DLI (Euro 880,000, US$ 1 million equivalent) - Improved quality of WASCO’s technical data, seeks to incentivize improvements in management decision making and the regulatory interface; and will include the development, approval and implementation of a technical data quality improvement and audit plan.

• The second DLI (Euro 880,000, US$ 1 million equivalent) – Improved quality of WASCO’s audited financial data/reporting, seeks to promote improved management decision making, strengthen the WASCO-LEWA interface, and facilitate better statutory financial reporting.

• The third DLI – Improved performance of WASCO (Euro 880,000, US$ 1 million equivalent) seeks to incentivize improvements in the company’s technical, financial, and commercial performance against annual targets set by the regulator (LEWA).

Component 4. Contingent Emergency Response Part (CERC) (Euro 0)

27. In the event of an eligible crisis or emergency, this contingent component will provide immediate and effective response to said Eligible Crisis or Emergency, defined as “an event that has caused, or is likely to imminently cause a major adverse economic and/or social impact associated with natural or man-made crises or disasters.”25 The World Bank’s assistance may consist of immediate support in assessing the emergency’s impact and developing a recovery strategy or the restructuring of existing, or provision of new, Investment Project Financing (IPF). This may be particularly relevant with the possible adverse impacts of ‘El Nino’ in the coming period. In all cases, the World Bank would adapt its rapid response in form and scope to the emergency’s particular circumstances and take into account the World Bank Group’s Country Partnership Framework for the country. To ensure that this component operates effectively, a Contingent Emergency Response Manual (CERM) is part of the Project Operational Manual (POM) for specific eligible disasters, detailing fiduciary, safeguards, monitoring and reporting, and any other necessary implementation arrangements.

C. Project Beneficiaries 28. The project will directly benefit about 115,000 inhabitants located in Maputsoe and Hlotse and several small settlements in the Leribe district, close to the northern border with South Africa. Of these, about 100,000 people with existing connections will benefit from improved water service quality while an additional 15,000 people will benefit from new access.

29. The industrial sector in the project area will also benefit significantly from this project. Maputsoe is the second largest developed industrial area after Maseru. It has industries of national importance, including a milling company that produces mealie meal for the entire country and 23 textile and apparel factories. Textile factories located in the Maputsoe and Nyenye industrial estates employ over 13,000 people. The WASCO water system is only able to serve about 50 percent of the demand in the area. The existing businesses currently focus on ready-cut material, which is imported, sewn, and reexported. If additional water supply were available, these businesses would have the opportunity to expand into higher value-added activities. There are currently 10 vacant factory shells in the industrial estate,

25 Eligible emergency is defined in OP 8.00, Rapid Response to Crises and Emergencies.


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providing space for immediate addition of more firms if water is available. There is also potential to develop an additional 30 hectares without the need to develop additional infrastructure.

30. Unemployment in Lesotho is high with 48 percent of women and 25 percent of men in Leribe

reporting that they have not been employed in the 12 months before a 2014 Demographic and Health

Survey (DHS)26. Women, as the primary workers employed by garment factories, will benefit directly by

improvements in job opportunities and work environment in the factories influenced by the project.

26 Ministry of Health [Lesotho] and ICF International. 2016. Lesotho Demographic and Health Survey 2014. Maseru, Lesotho: Ministry of Health and ICF International.


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D. Results Chain

Component 1. Water Supply Investments in Zones 2 and 3

• Construction of bulk water scheme to provide services in Maputsoe, Hlotse, and nearby settlements

• Expansion and rehabilitation of water distribution network

• Volume of increased bulk water availability by 25,000 (m3/day) in priority water zones

• Reduction of water losses by volume of water saved

• Increased water availability and access to improved water supply services in two priority zones.

• More reliable water for industrial growth and other economic activities such as smallholder agriculture and animal husbandry contribute to economic growth in the area

• Increased access to water supply services contributes to decrease of water-related diseases and improved quality of life among vulnerable populations

• Increased population resilience to extreme water-related events, including those caused by climate change

Component 2. Capacity Building, Institutional Strengthening, and Project Management

• Improved project management by CoW

• Improvement of performance of sector institutions, including DRWS, and local councils on water supply service delivery

• Increased effectiveness of the sector economic regulator, LEWA

• Improved sector management by the MoW

• Change management and other support to WASCO

• Preparation of national sanitation program and update of masterplan and action plan

• Improved technical and financial performance of WASCO and key sector stakeholders

• Great sector accountability to citizens

• Better management decision making by key sector stakeholders

Activities/Outputs Intermediate Results Outcomes Higher-level Outcomes


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Component 3. WASCO Performance Improvements

• Strengthened quality of technical and financial data

• Introduction of performance improvement incentive scheme

• Improved technical and financial performance of WASCO.

• Improvement in quality of sector technical and financial data

• Improved water services to customers resulting in greater customer satisfaction

• Better capacitated and incentivized WASCO to deliver quality services

Activities/Outputs Intermediate Results Outcomes Higher-level Outcomes


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E. Rationale for World Bank Involvement and Role of Partners 31. The World Bank’s long history in the Lesotho water sector makes it a unique partner to support the GoL with the implementation of the LLWSS program. Since the early 1980s, the World Bank has supported Lesotho with a dual program to (a) improve long-term, secure water supplies to the Lowlands and (b) capitalize on the opportunities and revenue streams associated with planned water transfers. The World Bank began supporting the LHWP in the 1980s with lending and analytical and advisory services that supported the development of design studies and Environmental and Social Management Plans (ESMPs). The World Bank-financed WSIP APL1 was approved in 2004; WSIP APL2 was approved in 2009 with additional financing in 2014 and it closed on December 31, 2018. The World Bank has also provided Advisory Services and Analytics—including the Lesotho Water Security and Climate Change Assessment Report and the Botswana Water Transfer Study—in support of the LHWP.27 The World Bank through WSIP APL2 is supporting the GoL with preparatory work, including detailed designs, safeguard documents, and implementation arrangements, to ensure that the LLWSS starts with a solid foundation.

32. The World Bank is providing support to the GoL for the implementation of the next phase of the LLWSS, which includes Zones 2 and 3 (covered by the proposed project) and Zones 6 and 7, to be financed by the EU and EIB. The EU and EIB will provide €41 million and €80 million, respectively, as parallel financing toward the LLWSS. Funds from the two financiers will contribute, among other things, to bulk water supply and distribution networks, sanitation planning (World Bank), and limited sanitation investments by EU/EIB in Mafeteng and Mohale’s Hoek (Zones 6 and 7). The EU will also contribute to the project management costs, specifically for the Project Management Consultant (PMC) firm that will support the PIU.

F. Lessons Learned and Reflected in the Project Design 33. The project will incorporate important lessons captured from the implementation of World Bank-financed projects in Lesotho and across the globe. Specific lessons incorporated into the project include:

• Additional infrastructure investment without complementary capacity building of service providers is not sustainable. The project investment amounts, and those of donor partners, are significant. It will be important that WASCO is reoriented to adopting modern utility management practices, and the project includes TA for a change management consultant to support WASCO through that process.

• Operations should consider a range of World Bank Group instruments to match existing sector challenges. The IPF instrument, with DLIs, allows for input-based support for critical sector investments combined with output-based disbursements upon achievement of performance milestones.

• The provision of performance incentives can help deliver better results. In this case, the DLI approach has been adopted to encourage achievement of higher levels of performance

27 The Lesotho Water Security and Climate Change Assessment Report concludes that all future climate scenarios consistently demonstrate an increase in temperature, while changes in patterns of precipitation vary among the different scenarios. The report also indicates that this will have implications for long-term domestic and industrial water security, patterns of agricultural production, and opportunities afforded through further development of water transfer infrastructure.


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by WASCO. The DLI financing will allow WASCO to invest in assets that will further improve the technical and financial performance of the company in support of the PDO.

• The provision of new water services without considering the consequences for sanitation can create suboptimal conditions. Given resource and capacity limitations for adequately addressing WSS needs and current knowledge gaps in the sanitation subsector in Lesotho, the project will support comprehensive analytical work to help the GoL prepare clear action plans for more concrete sanitation interventions.

• Experience from the MDWSP showed that provision of water to towns without supplying unmet demands in villages along the transmission pipeline routes can create vandalism from surrounding communities. This risk was identified during the MDWSP project design but activities were excluded from the original design due to cost considerations. Water supply to villages was ultimately not addressed in the project due to coordination failures and the onset of drought conditions. The new project includes provision for supplying the villages and communities along the pipeline routes in the design.

III. IMPLEMENTATION ARRANGEMENTS

A. Institutional and Implementation Arrangements 34. Legal agreements. The Ministry of Finance (MoF), representing the GoL as the Borrower, will sign a Financing Agreement for the IDA credit with the World Bank. A Subsidiary Agreement between the MoW and WASCO outlining mutual obligations regarding implementation of activities under Component 3 will also be signed.

35. Project Steering Committee. The GoL will establish a Lowlands Water Supply Steering Committee (SC) to oversee preparation and implementation of the project. The SC will be chaired by the MoW Principal Secretary (PS level) and constitute members (Senior Government/Directors or Chief Executive Officer) from the MoF, MoDP, MoH, WASCO, Ministry of Local Government and Chieftaincy affairs (MLG), and others as deemed relevant by the GoL. The SC will provide oversight and guidance on project implementation. It will also facilitate inter-institutional coordination and will resolve legal, policy, and operational bottlenecks as necessary. The SC will meet at least twice a year and shall inform the Government (through the MoW) on progress and challenges confronting the project. The CoW and the PIU Manager will be ex officio members of the SC. The PIU shall form the Secretariat of the SC.

36. Project implementing arrangements. The project will be implemented by the MoW through the office of the CoW. The CoW will be responsible for signing all contracts and authorization of contractors’ payments. It will report progress to the MoF and financiers and coordinate with other ministries.

37. PIU. The PIU will be responsible for the implementation of the project. The PIU will report to the CoW and will constitute a core team comprising government staff and secondees from WASCO and the DRWS and will be supported by experienced individual consultants financed by IDA, including a PIU manager, a procurement specialist, a financial management (FM) specialist, a social and an environmental safeguards specialist, a monitoring and evaluation (M&E) specialist, and a civil engineer. The WASCO and DRWS secondees will be dedicated staff, selected on the basis of terms of reference (TOR) acceptable to the World Bank, who will ensure that the project design and implementation for Components 1 and 2


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have a strong link with the planning, O&M, and service delivery activities managed by both agencies. The PIU will accommodate periodic secondment of additional staff from WASCO and the DRWS to participate in specific activities to ensure that capacity and skills are transferred to, and retained in, these agencies after the project closes. Appointment of core PIU staff is ongoing; the procurement specialist, FM specialist, and M&E specialist have been appointed. A dedicated, qualified, and experienced environmental specialist and social safeguards specialist who both have extensive experience in implementing the World Bank’s environmental and social safeguard policies are selected for the PIU. Further training on the application of the World Bank’s safeguard policies will be provided to the specialists before and during implementation of the projects to ensure that the World Bank’s safeguards polices are properly applied and that the project activities are implemented and monitored in accordance with the applicable World Bank safeguard policies. The social safeguards specialist will be complemented by citizen engagement officers and compensation and community liaison officers. The PIU Director was appointed. The TOR for the PMC, which will be financed through the EU grant, was prepared, reviewed, and approved by the EU/EIB and the World Bank, and the firm is expected to be selected early during implementation. The PIU will manage project implementation until the PMC is hired.

38. PMC. The PIU will be complemented by a PMC firm, financed by the EU, to support day-to-day implementation of the project. The PMC will report to the CoW through the PIU Manager. The functions of the PMC will include, among others, support for managing procurement of goods, works, and services under the project; contracts management; physical monitoring of works, including the technical, safeguards, and other aspects; and financial status and disbursement forecasting. The PMC shall be a firm with expertise satisfactory to the Government and the two funders.

39. WASCO Project Team. An Eligible Expenditure Program (EPP) associated with the DLIs in Component 3 will be managed by a team in WASCO, and will consist of the company’s operating costs associated with the performance improvement program as outlined in the Project Operational Manual. Specific budget lines are to be elaborated in the Project Operational Manual. The team will be assessed by the World Bank during early project implementation. A WASCO team with capacity acceptable to the World Bank will be a disbursement condition for Component 3. The WASCO team will report progress to the PIU.

40. The roles of the implementing entities are provided in Annex 1 and are further detailed in the POM.

B. Results Monitoring and Evaluation Arrangements 41. The PIU will have overall responsibility for project M&E. The PIU will prepare semiannual progress reports during project implementation in a manner and format acceptable to the World Bank. These reports will describe the status of all components and activities, progress toward achievement of the PDO, key performance data from specific project activities that contribute to the project’s intermediate results, and other content specified in the M&E plan to be outlined in the POM and set out in the Results Framework. The PIU will include a dedicated M&E specialist to manage the function. The WASCO PIU will be responsible for reporting on implementation progress and results associated with the eligible expenditures financed by the funds disbursed under Component 3.


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42. Verifying performance against the DLIs in Component 3 will be the responsibility of the CoW based on inputs from the LEWA (through its technical audit function), the statutory financial auditor of WASCO, and the Boards of the LEWA and WASCO. The arrangements are described in more detail in annex 3 and will be clarified in the POM.

43. A midterm review of the project will be carried out to assess overall implementation progress and identify and resolve any key issues affecting implementation. An evaluation will also be carried out at the end of the project as an input to the Implementation Completion and Results Report to evaluate final results, assess overall performance, and capture key lessons.

C. Sustainability 44. Technical and financial capacity of service providers. Sustainability of water supply infrastructure investments will be improved through targeted institutional strengthening subcomponents. These will address factors affecting overall capacity and financial sustainability of the service providers responsible for operating and maintaining the various facilities, particularly WASCO and the DRWS.

45. Social accountability measures, supported by TA, will be undertaken to promote sustainability of the investments by strengthening citizen engagement and accountability of service providers. Social accountability mechanisms will be strengthened to directly engage WASCO with its customers to ensure that the company is better informed and more accountable for services delivered. This will complement existing operational and financial accountability mechanisms to the LEWA and the Government. Additionally, TA will be provided to help the LEWA improve its technical audit function.

46. Community management and oversight mechanisms will be strengthened through the DRWS for water services in rural areas where beneficiary villages along the pipeline routes are served by WASCO. These community management and oversight mechanisms will function in a participatory manner and involve existing community groups, especially women’s groups, to help effectively manage system components such as standpipes.

IV. PROJECT APPRAISAL SUMMARY

A. Technical and Economic & Financial Analysis Technical

47. Water supply. Investments in water in Zones 2 and 3 will improve service quality and enhance water security and resilience to recurrent droughts and climate change in the project areas. Target areas include the towns of Hlotse and Maputsoe and villages along the main pipeline route including Khanyane, Hlotse, Tsikoane, Maputsoe, Ha Lesiamo, Mpharane, and areas surrounding them. Priority will be given to areas that already have a distribution network but no water, such as Tsikoane. Taking into account available resources and ensuring capital use efficiency, the components of the water supply system will be designed as follows: (a) water intake works, raw water pumping station, and conveyance system designed for capacity up to year 2045; (b) water treatment works to have total capacity by year 2045 of 60,000 m3 per day but implemented in phases, with Phase I (funded under this project) being 25,000 m3 per day for capacity up to year 2030; (c) transmission pipeline and main reservoirs that will extend from


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the water works in Hlotse to Maputsoe under this project and will be sized for demand up to year 2045; and (d) drinking water distribution rehabilitation and extension in the areas covered, which will have a capacity up to year 2045. The detailed component description and costs are presented in Annex 2.

48. The design of the bulk water supply system is generally satisfactory and has been carried out based on good engineering practice. The bulk water supply system has been divided into two main packages: (a) the raw water intake works, conveyance system, raw water storage, and water treatment works and associated works and (b) the bulk treated water transmission system comprising of the transmission pipelines, booster pump stations, and reservoirs. The package for the bulk treated water transmission system has complete designs and is ready for tendering. As is good practice, design review of the bulk treated transmission system will be one of the first tasks for the consultancy for construction supervision. This will be undertaken before starting the detailed design for the distribution network. This consultancy contract should be ready for signing soon after project effectiveness with procurement of the works package for bulk treated water transmission system launched three to four months thereafter.

49. The raw water intake and water treatment works will be implemented through a parallel design-and-build contract. The location and size of the intake works and the waterworks, along with possible process designs, have been completed but a detailed design could not be carried out as there was a need for a sediment yield analysis and water quality data. The GoL through the DWA with support from WASCO has started monitoring water quality parameters and sediment yields critical for water treatment process design. The Government is preparing bidding documents following the World Bank’s Standard Bidding Documents for design-and-build contracts. Due to the complex nature and value of this design-and-build package, coupled with limited capacity of the Government on works of this nature and size, a consultant will be hired to support finalization, bidding, evaluation, and supervision of the package. The request for expression of interest for the consultancy services was launched in November 2018 with contract award expected soon after project effectiveness. The PMC will provide implementation support.

50. Climate screening has been undertaken using the Climate and Disaster Risk Analysis Tool. Climate change impacts are predicted to include the intensity and extension of dry seasons in the project area. Infrastructure investments under Component 1 are necessary adaptation measures to reduce the potential impacts on the project area. Similarly, under Component 2, improved planning procedures and addressing non-revenue water (NRW) have potential to mitigate adverse climate effects. They can also contribute to adaptation and increased resilience by reducing raw water abstractions and curbing tankering and emergency water rationing which often occurs during dry seasons in the project area. The project will also ensure that relevant safeguards instruments incorporate appropriate mitigation measures to reduce potential environmental and social impacts. The CERC may also support climate proofing measures should the need arise.

51. Sanitation. A preliminary assessment of the sanitation situation in the project areas during preparation highlighted concerns such as the poor state of sewerage and wastewater treatment facilities managed by WASCO. Sanitation coverage nationally is also relatively low in urban and rural areas, based on available data. There are, however, no clear sanitation diagnostics or reliable data for the project areas. This highlights the need for improved data management systems for sanitation, a comprehensive assessment of the current situation, and definition of key priorities. The project will therefore finance a TA for strategic sanitation planning, including a National Sanitation Action Plan building upon the WATSAN policy and implementation strategies; update and expansion of existing sanitation master plans in line


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with the Citywide Inclusive Sanitation28 approach; the strengthening of the WSS information monitoring and management system; feasibility studies, detailed designs, and technical specifications for bidding documents in high priority areas; policy and institutional aspects; detailed action plans for implementation of rural sanitation and hygiene promotion with a more targeted nutrition-sensitive WASH approach aimed at reducing child stunting; and the development of a comprehensive industrial wastewater management regulation strategy and action plan.

52. Institutional. Strengthening the sector’s regulatory model and improving the performance of WASCO are critical to better service delivery and long-term financial sustainability in the sector. TA will be provided to the LEWA and WASCO to improve the technical and financial data quality that is foundational for good regulation. An institutional analysis of WASCO was carried out as part of project preparation, based on the Water Utility Maturity Model.29 The analysis found that the utility has built the basic behavioral orientations, structures, capabilities, and tools necessary for progress and is beginning to develop attributes of proactiveness, flexibility, and performance orientation. To transform itself into an efficient and effective utility the company faces a number of challenges, which have been categorized under four thematic areas: governance and general management, staff productivity, structure and systems enhancement and development, and commercial and customer services. To support WASCO in addressing these challenges, a change management consultant will be financed for the duration of the project period to guide WASCO as it determines its own feasible reform path. In parallel, the board will be supported by a coach to further professionalize the board function.

53. The institutional TA is complemented by DLIs under Component 3 to further incentivize the management and board of WASCO to deliver results. The expected institutional improvements will lead to better governance and improved financial and service performance and the possibility to mobilize private finance in the future. Additional institutional TA follows more traditional routes related to capacity building and knowledge transfers for the LEWA, DRWS, CoW, MoDP, and MoW.

Economic and Financial

54. Economic analysis. The LLWDP is estimated to have an economic internal rate of return (EIRR) of 14 percent over a 20-year horizon. Relevant costs include direct project costs such as construction, TA, project management, and performance-based grants. Estimates from the CoW on costs for ongoing O&M through the year 2039 are also included for both the bulk water infrastructure and distribution networks. Other project costs include the connection fees paid by households for initiating services with WASCO.

55. The LLWDP will generate four main categories of benefits: reduced reliance on tanker trucks for water supply for urban households, better health outcomes and time savings for rural households, increased sales for industries in Maputsoe, and the estimated value of the reduction in carbon emissions in the project area. Estimates on the benefits of NRW reduction are not included in the analysis due to the level of data currently available. Many households in the WASCO service area are already connected to the network. However, due to limited production capacity, outages are frequent, requiring households to supplement by purchasing water from tanker trucks. The cost per cubic meter of tanker-provided water

28 The concept of Citywide Inclusive Sanitation is described in more detail in annex 2 under Sanitation. 29 The Water Utility Maturity Model is a tool that assesses the performance of a utility considering the five attributes of organizational performance behavior, structure, capability, tools, and ability to influence the external operating environment, based on a scale of 1 to 5, with 5 being the best performing and 1 the least.


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is considerably higher than WASCO’s official tariffs. By expanding production capacity through the project, households will benefit from substantial savings. Additionally, the energy costs for transporting piped water are considerably lower, resulting in lower carbon emissions. By contrast, many rural households lack access to improved water sources or must travel long distances. Through the project these households will benefit from reduced incidences of disease and mortality and will also benefit from additional time previously spent fetching water.

56. The majority of economic benefits attributable to the project are expected to be derived from increased water supply for industrial customers in the Maputsoe and Nyenye industrial estates. Focusing mostly on textiles, these customers are important to WASCO with their estimated US$144 million in annual sales. Lack of sufficient water supply for production has been flagged as a serious constraint to growth. Addressing this barrier is likely to result in increased sales, which will have significant knock-on effects for investment and job creation in the region. Further details on the methodology for the economic analysis and additional details on the current financial status of WASCO are available in Annex 4.

57. Sensitivity analysis. The project is robust against both cost overruns and increased O&M. A construction cost overrun of 20 percent is estimated to decrease the EIRR to 12 percent. Similarly, an increase of annual O&M costs of 20 percent versus original estimates decreases the EIRR to 12 percent.

58. As most of the economic benefits of the project are due to industrial customers, a decline in the number of households reached will have minimal impact on the EIRR. Even if no urban households are reached, the EIRR will decrease by a single percentage point, to 13 percent. The EIRR will remain unchanged if no rural households are reached. However, the assumptions used to estimate increased sales by industrial customers as a result of the project introduce greater variability into the EIRR, as demonstrated below.

Table 1. Sensitivity Analysis

Difference in Actual versus Estimated Sales Attributable to the Project

Estimated EIRR (%)

80% Higher 21

60% Higher 20

40% Higher 18

20% Higher 16

Same 14

20% Lower 11

40% Lower 7

60% Lower 2

80% Lower −7

59. Greenhouse gas accounting. The net emissions of the project are estimated at −93,557 tons of CO2-equivalents (tCO2-eq) over the life of the project, while the gross emissions are estimated to be 42 tCO2-eq, due to the use of electricity generated by hydropower for pumping, treatment, and distribution. The project will displace tanker use and thus reduce fuel consumption. On average, the project will generate estimated net emissions of −3,465 tCO2-eq annually. The net present value (NPV) of this


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reduction in emissions is estimated to range from US$1.4 million to US$2.8 million at a discount rate of 6 percent.30

60. WASCO financial analysis. WASCO’s financial performance has steadily improved over the last three years. This is due in part to reliance on ongoing subsidy from the GoL for both operating costs and capital investment. In addition to the broader benefits to society, the project is expected to have financial impacts on WASCO, which will benefit from increased revenues from both household and industrial customers, but it will also incur additional costs. More information is available in Annex 4.

61. Although the LBWSA is still in the initial design stages, the rates proposed by the design consultant have been used as a proxy for costs. At the full cost-recovery bulk water tariff determined by the design consultant (LSL 19.6 per m3), the project is anticipated to have a negative NPV of US$8.3 million for WASCO over a 10-year time horizon, using WASCO’s official discount rate of 10 percent. If the bulk water tariff is set to cover only O&M (LSL 6.2 per m3), the project will have a positive NPV of US$3.8 million. Without retail tariff increases, the full cost-recovery tariff proposed will negatively impact WASCO’s financial position. The NPV is highly sensitive to increases in tariffs. The project will support the GoL in reviewing the issues around bulk water supply and tariffs and will foster a discussion on this issue with key stakeholders.

B. Fiduciary Financial Management

62. The FM arrangements will be handled by an appropriately qualified head of finance recruited within the PIU under TOR acceptable to the World Bank. To record and report the project eligible expenditures, the project will use an off-the-shell accounting system. The project will consider using the accounting system procured under the MDWSP. Budgets will be developed using approved annual work plans. Annex 3 describes arrangements and verification process for the EPP.

63. The project will mainly disburse on advances to the segregated PIU Designated Accounts, although all other methods (reimbursement, direct payments, and special commitments) will be available for the project. The project will report on the use of funds on a quarterly basis, using unaudited interim financial statements. The project will be audited by the Office of the Auditor General.

64. The FM assessment was carried out in accordance with the World Bank’s Operational Policy 10.00 and the Financial Management Manual issued by the Financial Management Board on March 1, 2010. The objective of the assessment was to determine whether the project implementing units within the ministry and WASCO has acceptable FM arrangements, which will ensure (a) that the project funds are used only for the intended purposes in an efficient and economical way; (b) the preparation of accurate, reliable, and timely periodic financial reports; and (c) safeguard of the assets. The overall conclusion of the FM assessment is that the project’s FM has an overall risk rating of Substantial and the FM arrangements satisfy the World Bank’s minimum requirements under the World Bank’s policy and procedures on FM as per Investment Project Financing Policy and Directive.

30 The analysis is based on the 2017 methodology using the World Bank shadow price of carbon.


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65. Further information on the FM arrangements, risk assessments and proposed mitigations can be found in Annex 5.

Procurement

66. All procurement to be financed under the project will be carried out in accordance with the World Bank Procurement Regulations for IPF Borrowers (dated July 2016), revised November 2017 and August 2018, the provisions stipulated in the Legal Agreement, and the ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD and IDA and Grants’, dated July 1, 2016 (the Anticorruption Guidelines). Project procurement will be carried out by the procurement unit of the CoW, which is currently supporting WSIP APL2, until the full complement of the new PIU structure for the proposed project is in place.

67. A procurement capacity and risk assessment was carried out by the World Bank for the CoW to review the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement duties and management of the commission. The Procurement Risk Assessment and Management System (PRAMS) was finalized. A preliminary assessment of the current PIU under the CoW identified the following key issues: (a) lack of adherence to Procurement Plan timelines may lead to implementation delays and weak contract monitoring which may impede speedy resolution of contractual matters, (b) the current procurement officer has limited experience with infrastructure procurements, and (c) the procurement unit requires strengthening of their procurement and contract management capacities. Based on the assessment and taking note of the role and responsibility of the commission responsible for procurement, the procurement risk rating is Substantial. The commission will require strengthening of its procurement and contract management capacities.

68. Preliminary risk mitigation measures based on the discussion and preliminary assessment include (a) hiring a procurement specialist with experience in infrastructure procurements, funded under the project, and putting in place a contract management plan for major contracts; the CoW has already initiated the process of hiring the procurement specialist and a contract negotiation is ongoing with the selected candidate and (b) training new and current staff in World Bank Procurement Regulations. The new PIU will also be strengthened through the support of the PMC firm hired under EU financing.

69. A Project Procurement Strategy for Development (PPSD) was developed to determine the approach to market, the selection methods, evaluation options, and any other sustainability considerations that may need to be included. The PPSD considered this and other factors in determining the Procurement Plan, especially the packaging. Based on its assessment of the project requirements, technical solutions and market base, the PPSD recommended a procurement strategy focusing on individual packages for consultancy services and works using both international and national competitive bidding approaches. For works where detailed designs have been completed and with limited envisaged complexity or innovation the strategy recommended is Request for Bids and Request for Quotations based on magnitude and scope of the envisaged contracts. For works with conceptual designs for which innovation can be introduced the selection method recommended was Request for Proposals, as is the same for consultant selection. The strategy for supply and installation of software and hardware the selection method is RFBs. The procurement packaging is reflected in the procurement plan for the first 18 months of the project. The PPSD also identified the need for strengthening capacity of the project implementing entities to ensure efficient and effective procurement implementation.


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70. Fiduciary oversight by the World Bank. The World Bank shall prior review contracts according to the prior review thresholds set in the PPSD/Procurement Plan. All contracts not covered under prior review by the World Bank will be subject to post review during implementation support missions, including missions by consultants hired by the World Bank or through supreme audit institutions as part of the financial audit. The World Bank may, at any time, conduct independent procurement reviews of all the contracts financed under the credit.

71. Contract management. High-risk and high-value procurements will be identified for increased contract management support and indicated in the Procurement Plan. The department will develop key performance indicators (KPIs) for such identified contracts and the KPIs will be monitored during the actual execution of contracts. The World Bank team will provide additional due diligence and independent review of the contract performance of such identified procurements. A fully staffed PIU of the department will be responsible for overall project/contract management. The team will be ably assisted by a multiskilled project management team that will be engaged to provide overall implementation support and monitor all works, goods, and consultancy contracts.

C. Safeguards Environment (including Safeguards)

72. The project is classified as Category A because of the (a) significant scope of physical infrastructure to be constructed and the associated earthworks that will take place within a sensitive ecosystem, mainly the Hlotse River; (b) complexity and interdependency of different water systems in augmenting the river capacity to ensure reliable supply of water to the water treatment plant; and (c) reliance on water releases from the Katse Dam through a constructed tunnel located in Tsehlanyane National Park to augment the capacity of the Hlotse River during the dry season. The project will finance bulk water infrastructure (intake, water treatment plant, bulk-treated water storage reservoirs, transmission pipelines, and pumping stations) and the water distribution network (reticulation). An ESIA and associated ESMP have been prepared for Component 1 (water supply, transmission, distribution) and an ESMF has been prepared for screening, assessing, and managing impacts related to Component 2 (sanitation master plans, feasibility/detailed designs/bidding documents of priority sanitation works), Component 3 (replacement of Asbestos Cement (AC) pipes), and Component 4 (CERC).

73. The project is expected to bring substantial environmental benefits that will contribute to the improvement of public health and quality of life of communities living in the targeted project areas through access to clean water. Some of the project activities serve as mitigation measures to address the existing public health and environmental problems caused by lack of adequate WSS facilities in the project area. During the construction phase, the main environmental risks and impacts will be associated with the management and control of temporary impacts emanating from excavation works mainly under Component 1. These risks include dust and noise emission from heavy construction machinery and equipment, handling and disposal of soil from construction waste, erosion and sedimentation of water bodies, and occupational/community health and safety. During the operational phase, the main environmental risks and impacts include sludge management generated from the water treatment facilities, occupation health and safety at the treatment facilities, and management of environmental flow releases during the period of low flows for both components.


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74. The following World Bank safeguard policies are triggered: (a) OP/BP 4.01 - Environmental Assessment, (b) OP/BP - 4.04 Natural Habitats, (c) OP/BP 4.11 - Physical Cultural Resources, (d) OP/BP 4.37 - Safety of Dams, (e) OP/BP 7.50 - Projects on International Waterways, and (f) OP/BP 4.12 Involuntary Resettlement.

75. OP/BP 4.01 - Environmental Assessment. The project area of influence taken into consideration for the environmental assessment comprises the geographical areas for Zones 2 and 3 and the associated facilities (Katse Dam for Zones 2 and 3). The key issues assessed in detail include (a) impacts of water intakes on the environmental flows and aquatic ecosystems, including migratory fish species; (b) impacts on upstream and downstream users and any potential conflicts in water use; (c) impacts on water quality and aquatic ecology; (d) erosion and sedimentation of rivers from earthworks and runoff; and (e) disposal of sludge from water treatment plants. 76. The most significant environmental impacts likely to occur during the construction and operational phases of the project include alterations in the quantity and quality of water in the Hlotse River to meet the domestic and livelihoods requirement of the communities dependent on the river and maintenance of the aquatic habitat. Both impacts on the water quality and quantity might likely persist during the operational phase of the project and are, therefore, considered long term as discussed in more detail in the following paragraphs. The possible impacts of the proposed abstraction on the aquatic ecosystems of the Hlotse River will be most severe during the critical low flow periods (July to September) because of the following reasons:

• During critical low flow periods, connectivity might be lost between the upper and lower reaches of the Hlotse River which would have a severe impact on migrating fish species in the river.

• Dilution factors of possible water pollutants will be maximally reduced during critical low flow periods, endangering water-quality-sensitive aquatic invertebrate and fish species.

• Flow velocities will become critically low during these dry periods such that velocities of above 0.6 m per second and even 0.3 m per second would most likely not be maintained, which would severely affect the populations of critically flow-dependent aquatic invertebrate and fish indicator species.

• Possible releases from the Katse Dam (through the constructed tunnel) to augment the flows in the Hlotse River, during the critical low flow periods to ensure the continuation of water abstraction, might alter the water quality of the Hlotse River.

77. On environmental flows necessary to maintain the hydrological integrity of the river, the ESIA proposes setting up an operating rule that will restrict water abstractions during the low flow periods, especially during the drought seasons, to ensure that minimum river flows are maintained. The instream flow requirement (IFR) downstream of the proposed intake has been conservatively taken as 15 percent of the river flow. Hence, at 15 percent, the IFR for the dry season flow is 0.032 MCM (1.1 mL per day). Thus, the downstream flow from the water balance will far exceed the IFR. The findings are based on a comprehensive Instream Flow Assessment (IFA) carried out in 2008. Provisions31 have been included under the project to carry out an IFA based on updated data, a decision support system to monitor the implementation of the environmental flow rates (EFRs) and ensure an appropriate adaptive management framework capable of modifying operations to ensure sustainability of the downstream environment. This

31 A legal covenant and a disbursement condition relating to these provisions are included in the project.


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proposed IFA will: a. Include a baseline study of the upper Hlotse River that would be affected by the water releases from

Katse Dam; b. Provide for the calculation of a new IFR based on the 2008 IFR with the conditions in the Hlotse River

as a benchmark; this new IFR study shall take into account ecosystem services and downstream

uses/users of the intake and current and future uses of the Hlotse River, including the design of a livelihood restoration program for affected downstream users;

c. Include a hydrological assessment to determine the impact of water releases from Katse on the hydrology of the upper Hlotse River above the planned intake works; such a study will inform the requisite mitigation measures;

d. Undertake an impact assessment of Katse water releases on the biota (fish, invertebrates) of the upper Hlotse River; and

e. Develop a water quality model on the impact of Katse water on water quality in the Hlotse River.

The above studies will be carried out before award of the contract regarding the design or civil works for the water intake and treatment plant. 78. OP/BP 4.04 - Natural Habitats. The construction of intake structures will take place on the Hlotse River. As such, construction activities associated with the intake sites may cause temporary to long-term impacts on critical invertebrate biotopes and fish habitats during and after construction because of increased erosion, riverbed and river bank modification, abstractions from the intake, loss of connectivity, and flow diversions. The level of suspended solids (SS) in the river downstream of the intake structures will likely increase because of disturbances of the riverbed by excavation activities during the construction stage. Based on the ESIA studies for LWDP II (2018), fish species that are expected to occur in Hlotse River based on local inhabitants’ knowledge and existing literature include Austroglanis sclateri, Barbus anoplus and B. paludinosus, Clarias gariepinus, Labeo capensis, Labeobarbus aeneus, and Oncorhynchus mykiss. A detailed EFR study including monitoring and operational procedures will be carried out before the detailed design of the water intake and treatment plant under Component 1 to determine if any migratory fish species will be affected by the proposed project on the Hlotse River. 79. OP/BP 4.11 - Physical Cultural Resources. Chance find procedures for identifying the physical cultural resources likely to occur during the implementation phase of the project are included in the ESMP. In addition, provisions have been made under the project to complete the Phase 1 Paleontological Impact Assessment (PIA) study in the areas of highest fossil potential, particularly where bedrock outcrops at or within 2 m of the surface; map all the fossil sites; and compile chance find procedures. This study will be carried out before the detailed design of the water intake and treatment plant under Component 1.

80. OP/BP 4.37 - Safety of Dams. The viability of the bulk water supply system under Zones 2 and 3 will rely on water releases from the existing Katse Dam located in the upper reaches of the Hlotse River through an existing water diversion valve/tunnel. The structural and nonstructural safety of the Katse Dam has been assessed, including its monitoring reports, 10-year dam safety review report, emergency preparedness plan, and related documents, in line with OP 4.37 of the World Bank safeguard policies. The LHWP has put in place a program of action to manage the safety issues for the infrastructure including Katse and Muela Dams. The program of action is articulated in two LHWP documents: Emergency Preparedness Plans for Katse and Muela and Dams Safety Interim 10-year Panel of Experts (POE) Review


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Report, the latest in 2018. The LHWP funding and governance are the joint responsibility of the Governments of Lesotho and South Africa.

81. OP 7.50 - Projects on International Waterways. The project will finance intake structures that will be constructed within the Hlotse River to abstract raw water which will then be delivered directly to an inlet of water treatment plants. The Hlotse River flows into the Mohokare-Caledon River and then to the Orange-Senqu River which is an international waterway shared by four riparian countries—Botswana, Lesotho, Namibia, and South Arica. OP 7.50 is triggered and notifications to the riparian countries were sent through the Orasecom Secretariat in accordance with World Bank policy and terms of the Orasecom Agreement which governs transboundary water sharing between the riparians. The expiry date for response based on the Orasecom Agreement was March 17, 2019. Botswana provided its no-objection to the project in writing in October 2018. No responses were received from the other two riparians, South Africa and Namibia, by the expiry period. The project will not cause appreciable harm to the other riparian states, and will not be adversely affected by the other riparian states’ water use. The project will also not create any potential for any of the terms of the mentioned treaty to be violated. In view of the aforementioned, on March 21, 2019, the World Bank’s Africa Regional Vice Presidency determined that the notification process required under OP 7.50 was completed and satisfied.

82. Borrower’s institutional capacity for safeguard policies. An initial assessment of PIU capacity for managing safeguards was undertaken. Through previous projects, the water sector in Lesotho has developed significant national capacity to address environmental and social issues associated with large water resources infrastructure projects such as the LHWP and WSIP. The project has retained some staff with previous experience on the LHWP and WSIP in the office of the CoW. The safeguards officers are knowledgeable on the intent and application of the World Bank safeguard policies and are requiring all program-related activities to adhere to the provisions contained therein. There is a qualified environmental safeguards specialist in the office of the CoW who will work on the project. A social safeguards specialist with experience from the previous Metolong Project has also been selected and is expected to sign the contract before the agreed date in the Financing Agreement, 15 days after effectiveness. The social safeguards specialist will be complemented by citizen engagement officers and compensation and community liaison officers who will be hired to complement the core team of staff in line with roles outlined in the ESIA Addendum as needed. Support will also be provided from the PMC safeguards specialists. Nonetheless, further strengthening activities will be required to be financed under the project in view of the level of safeguards supervision and quality control that will be required under the project. Further training on the application of the World Bank’s safeguard policies will be provided to the specialists before and during implementation of the projects to ensure that the World Bank’s safeguard polices are properly applied and that the project activities are implemented and monitored in accordance with the applicable World Bank safeguard policies. 83. Social (including Safeguards). The project triggers the World Bank’s policy on involuntary resettlement, OP/BP 4.12. An RAP has been prepared to mitigate and compensate for impact related to bulk water supply intake and treatment plant and transmission line (Component 1). The RAP will need to be updated in a manner satisfactory to the World Bank before the commencement of civil works. An RPF has been prepared to guide implementation related to impact associated with distribution lines and household connections and strategic sanitation planning TA (Component 2) and potential impact associated with the CERC (Component 4).


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84. The RPF provides the entitlement framework and outlines the resettlement process, likely categories of affected people, eligibility criteria and categories, compensation rates, methods of valuing impacts on affected people, community participation and information dissemination, grievance redress mechanism (GRM), effective M&E, data management, schedules and sequencing, and process for preparing additional RAPs. 85. The RAP for the bulk water supply and transmission line includes a comprehensive census and socioeconomic baseline identifying 267 households who will be affected by the investments. During construction, 271 structures will be permanently affected while 242 structures will be temporarily affected. The RAP provides a budget of LSL 22 million (about US$1.5 million equivalent) for compensation and livelihood restoration activities, including permanent and temporary loss of land, structures, trees, crops, as well as various allowances associated with the expected impact. It is envisaged that the project will require permanent acquisition of land (on the existing road reserve) and temporary occupation of land, resulting in restricted access to communal resources. During the construction phase of the project, assets such as fields and fencing walls will be temporarily affected, but these will be a temporary impact as once the pipelines are constructed, the field can be cultivated again and walls rebuilt. The servitude is relatively narrow and it is unlikely that people will lose entire crops due to construction activities. Access to their land may be temporarily compromised. The RAP provides guidelines on the relocation and compensation for different types of assets including a livelihood restoration and enhancement program. Land requirements include a river intake structure, source protection measures, water treatment plants, transmission pipelines, reservoirs, and auxiliary facilities activities. 86. The ESIA (which includes an Executive Summary in both English and Sesotho), ESMF, RAP, and RPF were widely consulted and have been disclosed on the World Bank’s intranet on March 19, 2019, and in Lesotho on February 6, 2019. The rest of the instruments were disclosed on the following dates: ESMF - World Bank’s intranet on February 13, 2019, and in Lesotho on February 6, 2019; RAP - World Bank’s intranet on March 18, 2019, and in Lesotho on February 6, 2019; and RPF - World Bank intranet on March 18, 2019 and in Lesotho on February 6, 2019. All activities identified in the ESIA, ESMF, RAP, and RPF have been budgeted for and included in the ESMF. Public consultations to disseminate the findings of the ESIA and RAP were held between January 24, 2019 and March 1, 2019. Representatives from all stakeholders, development partners, civil society organizations, the local authorities, and Project Affected Persons (PAPs) participated in the consultations. Comments from the workshop were incorporated into the final versions of the ESIA and RAP.

87. Grievance Redress Mechanisms. In addition to the World Bank’s standard grievance redress service, the project will set up a localized GRM building on both traditional conflict resolution mechanisms as well as project-based steps to ensure that affected communities and all stakeholders have an opportunity and means to raise their concerns or provide suggestions regarding project-related activities. From the community to the national level, there will be focal persons to receive, record, and address grievances, queries, and suggestions. A reporting line of received (and addressed) grievances will also be clearly defined so that the implementing agency will have a full set of data.

88. Complaints will be categorized, recorded, and consolidated periodically. The project GRM will include a feedback mechanism for WASCO customers which can be monitored by the LEWA as a regulatory


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body. The GRM database will also serve as an effective management tool to monitor progress and detect potential obstacles in the broad project implementation, particularly related to the implementation of resettlement mitigation and compensation. The project’s GRM rules and communication steps will be explained so that all stakeholders are aware and encouraged to use the mechanism for transparency and better project implementation. To better inform stakeholders, the project will prepare materials in Lesotho to be displayed in public areas as part of the communication activities. The PIU’s social safeguards specialist will take the lead in coordinating this function in collaboration with the respective stakeholders. 89. Gender and vulnerability issues. The project is likely to have some adverse social impacts that have been identified in the ESIA with proposed mitigation strategies. The influx of workers is expected to be limited due to focus on hiring locally. Under the proposed project, local labor will be recruited wherever possible to minimize labor influx because bringing in outside workers and establishing temporary labor camps could result in social risk to host communities especially on vulnerable groups (women and girls), including the potential for gender-based violence, sex trafficking, adolescent pregnancy and child abuse. The Gender Based Violence (GBV) risk assessment score for this project is low (12) as per the World Bank GBV risk assessment tool. While the project does not anticipate the establishment of labor camps, the labor and community interface cannot be ruled out. Hence the risks are related to management of the labor and community interface in the mostly rural setting of the proposed construction activities. Even though there is limited information available about sexual violence and its determinants in Lesotho the Government and its development partners, have initiated several proactive steps such the establishment of the Child and Gender protection Unit (CGPU), drafting of the Domestic Violence Bill 2018. Several organizations are present in the country that are actively engaged on matters related to HIV, sexual and domestic violence. 90. In order to prevent and address the potential social risks related to the labor influx, codes of conduct on child protection and gender-based violence will be integrated in the bidding documents and in the contracts of all employees, contractors, and consultants engaged in the project and educating the communities on proper conduct. Capacity building for the PIU is critical to address and monitor these issues. The Client should recommend that contractors engage unskilled local labor to reduce the influx of migrant workers and the associated negative impacts. It will, therefore, be important to develop site-specific measures and standard operating procedures before the contractors commence work and update them, as necessary, through the project lifecycle. It is critical to incorporate social mitigation measures into the civil works contracts with proper mechanisms for addressing noncompliance.

91. Key gender gaps in Lesotho, highlighted through the gender analysis carried out as part of project preparation, relate to a number of social and economic issues mostly affecting women, including (a) workload and time spent by women and children fetching water; (b) safety, security, and dignity of women and children in accessing sanitation services or the lack thereof; (c) limited economic opportunities in a country where unemployment levels are high, especially for women;32 (d) limited access to information for women, many of whom work at home; (e) inadequate participation in decision making; and (f) lack of voice and agency, especially among rural women. An area in which some of these gaps intersect, particularly women’s limited economic opportunities and inadequate participation in decision making, is in the representation of female employees in WASCO. Out of 573 staff in WASCO, women make up only 20 percent and are significantly underrepresented in technical positions. Although women are well

32 In 2017, unemployment in Lesotho was 29.2 percent overall, with that for women being 34.1 percent and men 24.8 percent.


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represented in management (with 50 percent of the top and 33 percent of middle management being women), WASCO overall continues to be a heavily male-dominated working environment. Because the water sector is traditionally considered a masculine domain, women do not have equal opportunities to getting hired in WASCO, even though a female talent pool of potential candidates exists, with nearly 31 percent of engineering graduates in Lesotho being women (UN Stats 2015).33 The project will address some of these gender gaps as follows:

(a) Improving access to water supply will help reduce time spent collecting water—for example, only 6.1 percent of households in rural areas of Lesotho have water on the premises and for more than 36.6 percent of rural households it takes more than 30 minutes to collect water.34

(b) Creating primary and secondary economic opportunities for community members, both by directly ensuring that the project activities provide men and women equal opportunities to apply for work and/or service provision and gender-sensitive work norms are promoted at all construction sites, but also because local industries that will benefit from the improved water services employ a large number of local women from the project areas—the project will ensure that the service provider, including the contractor, and recruitment policies foster opportunities for women to get employment.

(c) Ensuring that the project fosters effective knowledge exchange and consultations that allow women to participate equally with men, including on project activities such as resettlement and/or opportunities directly or indirectly created by the project.

(d) Ensuring that the change management TA for WASCO takes gender aspects into consideration, for instance, to ensure that recruitment processes and requirements for various jobs allow women to have equal opportunities to be employed in the company. Such measures could include, among others, posting job descriptions that target a diverse pool of candidates or ensuring that hiring teams are gender sensitized.

92. The project will include an indicator to monitor the number of women employed, with the end target being 30 percent female representation at WASCO, thereby meeting international standards. This will include monitoring improvements in the company’s gender focus through updating and securing WASCO Board approval of the HR gender policy. 93. Citizen engagement. The project activities will engage citizens in two broad areas. First, to ensure that water service providers, specifically WASCO, are held accountable to customers, and second, to ensure that investments and other activities financed through the project are implemented in consultation with key stakeholders. For the WASCO-focused activities, the company’s change management program to be supported by the project will include a strong customer engagement component to improve customer responsiveness. For the investments, consultations during appraisal and implementation will be carried out through stakeholders’ workshops, sensitization meetings, local media, community representatives, and public gatherings to ensure that voices of the most vulnerable population groups are taken into consideration. A beneficiary satisfaction survey will be conducted immediately after project commencement and before completion to assess satisfaction with water supply service delivery in the targeted areas and a relevant indicator has been incorporated in the Results Framework. An

33 UN Stats. 2015. “The World’s Women 2015.” https://unstats.un.org/unsd/gender/chapter3/chapter3.html. 34 Lesotho DHS 2014. Given that data on time spent fetching water disaggregated for the project area are not available, the project will not specifically include an indicator on this benefit.

https://unstats.un.org/unsd/gender/chapter3/chapter3.html


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indicator related to the grievance mechanism has also been included. The TOR for the beneficiary satisfaction survey will be prepared before project commencement to allow for early implementation of the survey. Citizen engagement activities will involve the following: citizen consultation through focus group discussions with beneficiaries on service quality and other pertinent concerns, establishment of grievance redress and feedback channels, and inclusion of actions to strengthen WASCO customer responsiveness in the change management program to be supported through the project. Furthermore, public hearings and disclosure meetings will form part of the process in engaging with the affected people and communities. It will be important to ensure early and continuous communication with the public to communicate benefits and help manage people’s expectations. Disclosure of safeguards instruments has been done and will continue to be done on the World Bank’s website and in-country.

V. KEY RISKS

A. Risk Summary Table

Risks Rating

Political and Governance Substantial

Macroeconomic Substantial

Sector Strategy and policy aspects Moderate

Technical Design Substantial

Institutional Capacity for implementation and sustainability Substantial

Fiduciary Risks Substantial

Environmental and Social Substantial

Stakeholders Moderate

Other

Program and Donor Moderate

Overall Implementation Risk Substantial

B. Overall Risk Rating and Explanation of Key Risks

94. The overall implementation risk is considered to be Substantial. The key risks are briefly discussed in the following paragraphs.

95. Political and Governance risks are rated Substantial. Governance risks relate to two main aspects. First, the current instability within WASCO’s management structure given the high recent turnover of top management. Second, the fact that the bulk water management arrangements in the sector are currently in a state of flux, with the GoL in the process of designing a new Bulk Water Management Agency that will be responsible for management of all bulk water services. Timeline and modalities for the establishment, structure, and operation of the new agency are still unclear. The project will provide TA to support the Government in part of the due diligence activities such as study tours to review various models of bulk water agencies to inform the design of Lesotho’s agency.


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96. Macroeconomic risks are rated substantial in view of the relatively high macro-fiscal risks in Lesotho, which could potentially impact counterpart funds availability for the project.

97. Technical design risks are rated Substantial. The design incorporates innovative performance-based disbursement modalities based on the IPF with the DLI model. Key stakeholders have been extensively consulted and involved in the development of the DLIs. Design risks also include lack of readiness of some of the larger-scale investments, given the poor performance by the design consultants who were hired to update the designs. This risk is being mitigated by including a design review and update as part of the construction supervision contracts and/or use of design-and-build contracts using the available designs as the basis for the design-and-build contracts. The use of the design-and-build contract presents a potential risk to implementation given the limited implementation capacity if not strengthened. The project has mitigated this risk by including a separate consultancy firm to support the PIU in finalizing the design and build bidding documents, evaluating contractors, and supervising them.

98. Institutional capacity for implementation and sustainability risk is rated Substantial. Risks relate to implementation capacity for effective delivery of all project activities and governance. Capacity issues relate to two key areas: (a) the CoW/LLWSSU’s capacity to concurrently manage the large investment program and the substantial TA to be financed by the World Bank, as well as investment in two additional zones to be financed by the EIB/EU and (b) delays in hiring the PMC, resulting in overloading of the leaner PIU. The first risk is mitigated through the strengthening of the PIU with a core team of experienced individual consultants financed through the project, to be fully appointed by fifteen days after project effectiveness, based on TORs acceptable to the World Bank. The PIU manager has been appointed and is managing project preparatory work, supported by staff of the LLWSSU and specialists from the office of the CoW currently managing the ongoing WSIP Phase II. Selection processes for other core staff, including the procurement specialist, the FM specialist, and the social safeguards specialist, are at advanced stages. The PIU is to be further supported by the PMC, which will be a firm with experienced specialists, funded through the EU grant. The risk of delays to the PMC coming on board will be mitigated through a careful planning and sequencing of project activities to be implemented in year 1, with funds allocated for additional TA to be hired on a short-term basis as needed until the PMC is in place. The TOR for the PMC are under preparation and will be reviewed by all parties, including the World Bank and EU/EIB.

99. There is an implementation risk that activities linked to improving WASCO’s performance (Component 3), which are relatively small compared to the total project cost, could be given a lower priority by the PIU compared to the major investments in Components 1 and 2. To mitigate this risk the implementation of Component 3 will be managed by a WASCO Project Team. Some capacity strengthening activities for this team will be carried out to ensure that due attention is given to this component and it is delivered in a satisfactory manner. The terms of the Subsidiary Agreement between the Ministry of Water and WASCO will ensure that the parties adhere to implementing their respective required activities in an effective manner.

100. To mitigate the potential risk of weak coordination between the PIU and the two key beneficiary organizations—WASCO and DRWS—the PIU will include full-time secondees from these organizations. They will be experienced staff with TOR that are acceptable to the World Bank. Draft TORs for the secondees were prepared and reviewed by the World Bank.


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101. Fiduciary risks are rated Substantial in view of the risks linked to institutional capacity for management of fiduciary aspects given the large aggregated investment program in the four zones with the parallel financing from EU and EIB and the institutional strengthening program which includes a novel DLI based approach. The project’s fiduciary implementation capacity is to be strengthened with the support of the PMC.

102. Environmental and social risks are also rated Substantial. The environmental and social risks are substantial due to the safeguards issues that will need to be addressed as part of the project, including a number of environmental and social safeguards studies to be carried out before the commencement of the design and construction of the water intake and treatment works under Component 1. The commitment to these aspects has been included as legal covenants binding the GoL to implementing then in line with the Financing Agreement. These aspects are discussed further under the Safeguards section of this document.

103. . . .


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VI. RESULTS FRAMEWORK AND MONITORING

Results Framework COUNTRY: Lesotho

Lesotho Lowlands Water Development Project - Phase II

Project Development Objectives(s)

The Proposed Development Objectives are to: (a) increase water availability and access to improved water supply services in two priority zones; and (b) improve technical and financial performance of WASCO.

Project Development Objective Indicators

RESULT_FRAME_T BL_ PD O

Indicator Name DLI Baseline Intermediate Targets End Target

1 2 3 4

Increased water availability in two priority water zones

Increased water production capacity in two priority water zones per day (Cubic Meters) (Cubic Meter(m3))

2,200.00 2,200.00 3,800.00 3,800.00 3,800.00 25,000.00

Increased access to water supply services in two priority zones

People provided with access to improved water sources (CRI, Number)

42,130.00 60,000.00 60,000.00 60,000.00 70,000.00 115,000.00

People provided with access to improved water sources - Female (RMS requirement) (CRI, Number)

28,670.00 35,000.00 36,000.00 38,000.00 38,000.00 58,000.00

People provided with access to improved water sources - rural (CRI, Number)

6,480.00 6,480.00 6,500.00 8,000.00 11,000.00 17,000.00


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RESULT_FRAME_T BL_ PD O


1 2 3 4

People provided with access to improved water sources - urban (CRI, Number)

35,600.00 45,000.00 48,000.00 55,000.00 80,000.00 98,000.00

People with existing connections benefitting from improved services (Number)

0.00 2,000.00 10,000.00 15,000.00 30,000.00 100,000.00

• Improved technical and financial performance of WASCO

WASCO's minimum achievement of annual financial and technical performance improvement targets defined by LEWA (Percentage)

DLI 5 0.00 70.00 70.00 70.00 70.00 70.00

PDO Table SPACE

Intermediate Results Indicators by Components

RESULT_FRAME_T BL_ IO


1 2 3 4

Component 1: Water Supply Investments in Zones 2 and 3

Number of km of water pipeline constructed (Kilometers)

0.00 0.00 10.00 55.00 150.00 267.00

Component 2: Capacity Building, Institutional Strengthening and Project Management

Non revenue water in project area (Percentage)

45.00 45.00 40.00 35.00 30.00 25.00

National Sanitation Action Plan TA completed and approved No No Yes Yes Yes Yes


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1 2 3 4

(Yes/No)

Number of people trained according to approved annual training plan (Number)

0.00 50.00 75.00 100.00 150.00 250.00

Annual customer satisfaction survey completed (Yes/No)

No No Yes Yes Yes Yes

Percentage of women employed by WASCO (Percentage)

23.00 23.00 25.00 25.00 30.00 30.00

Number of institutions benefitting from the project (Number)

0.00 3.00 4.00 4.00 4.00 4.00

Grievances addressed in line with existing grievance redress mechanisms (Percentage)

0.00 50.00 60.00 70.00 80.00 90.00

Component 3: WASCO Performance Improvements

DLR 1.1: Technical data quality improvement and audit plan approved (Yes/No)

No Yes Yes

DLR1.2: Proportion of cumulative actions achieved () DLI 1 0.00 60.00 80.00 95.00 100.00

DLR 2.1: Financial data/reporting quality improvement action plan approved (Yes/No)

No Yes Yes

DLR 2.2: Proportion of cumulative financial data quality/reporting actions achieved (Percentage)

DLI 3 0.00 0.00 60.00 80.00 95.00 95.00

DLR 3.1: Achievement of WASCO’s annual technical, 0.00 0.00 70.00 70.00 70.00 70.00


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1 2 3 4

financial and commercial performance improvement targets (Percentage)

IO Table SPACE

UL Table SPACE

Monitoring & Evaluation Plan: PDO Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Increased water production capacity in two priority water zones per day (Cubic Meters)

Volume of additional bulk water produced to supply priority water zones

Per semester

Water treatment plant operational records, availed to plant operators and LEWA.

The WTP operators will monitor and record water production in operational records on a daily basis. Data will be compiled and submitted to the PIU M&E team on a quarterly basis, for presentation in quarterly progress reports.

Water treatment Plant operators will be responsible for compiling and recording raw data on production capacity. The raw data will be submitted to the CoW and PIU M&E team.

People provided with access to improved water sources

This indicator measures the cumulative number of people who benefited from improved water supply services that have been

Per semester

WASCO commercial information system and DRWS

Respective WASCO Area Unit will: (i) record the number of connections achieved implementing

WASCO PIU Secondee in collaboration with the WASCO area unit, the contractor and consultants. The PIU


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constructed through operations supported by the World Bank.

records.

the Program financed under the Project; and, (ii) inform the WASCO commercial unit of the number of active connections achieved. The PIU will consolidate the data.

M&E team will be responsible for consolidating and reporting the data in progress reports.

People provided with access to improved water sources - Female (RMS requirement)

This indicator measures the cumulative number of people who benefited from improved water supply services that have been constructed through operations supported by the World Bank.

People provided with access to improved water sources - rural

Per semester

Contractor contract records, submitted to DRWS and subsequently to PIU M&E team.

The contractors will be responsible for recording new connections and standpipes constructed as part of their contract implementation and recording system. This data will be verified by project supervising engineers and availed in contract records provided to the PIU/PMC through the DRWS PIU

The contractor teams will be responsible for recording new connections and standpipes constructed. The DRWS PIU secondee will be responsible for the data collection. The PIU is responsible for consolidating and reporting on the data.


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secondee. The PIU is responsible for consolidating and reporting on the data.

People provided with access to improved water sources - urban

Quarterly

WASCO Operational and Commercial Records.

Number of households connected to the formal water supply system by the Lowlands Program financed under the Project, and the households connected to the rehabilitated systems benefitting from improved service quality. WASCO will: (i) check in WASCO information system the number of connections achieved implementing the Program financed under the Project; and, (ii) inform to MP the number of active connections achieved. PIU will consolidate the data.

PIU M&E Specialist will collect data from the supervision consultants/project supervision reports.

People with existing connections benefitting from improved services

People with existing connections benefitting

The indicator will be

Data will be taken from

Data will be collected from the WASCO

PIU M&E Specialist will report based on data


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from improved services. Improved water services will be assessed in terms of average hours of service per day.

assessed bi annually.

PIU M&E unit based on contractor and WASCO records.

technical audit reports.

taken from WASCO.

WASCO's minimum achievement of annual financial and technical performance improvement targets defined by LEWA

The indicator measures achievement of annual performance improvement targets set by the regulator (LEWA) as a percentage. The improvement targets cover various indicators measuring WASCO performance in terms of quality of service, economic and financial efficiency, and regulatory compliance.

Annually

Technical and Financial Audit reports for WASCO, and Bank correspondence and Minutes of WASCO and LEWA Board meetings pertaining to the subject.

The LEWA technical auditor will evaluate WASCO performance according to the approved technical audit plan and determine value of composite index achieved. WASCO's financial auditor will certify the proportion of financial improvement actions achieved by WASCO according to the approved financial data/reporting quality improvement plan. Data will be availed to the PIU and submitted to the Bank in accordance with procedures to be defined in the Project Operations Manual.

See Annex 3 (Table 3.2)


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ME PDO Table SPACE

Monitoring & Evaluation Plan: Intermediate Results Indicators

Indicator Name Definition/Description Frequency Datasource Methodology for Data Collection

Responsibility for Data Collection

Number of km of water pipeline constructed

The total number of km of pipelines constructed through the project in Km, including both bulk transmission and distribution pipelines.

Per semester

Contractor reports submitted to the client.

Contractor records certified by the supervising consultants will inform the progress reports prepared by the PIU.

PIU M&E Specialists.

Non revenue water in project area WASCO Non revenue water in project area

Annually

WASCO operational data

WASCO collects and reports on primary data. The Technical auditor to evaluate WASCO performance according to the approved audit plan for this indicator.

WASCO collects and reports on primary data, which is verified by the technical auditor.

National Sanitation Action Plan TA completed and approved

National Sanitation Action Plan TA will help to define and prioritize sanitation interventions

One time validation of activity completion.

Activity implementation progress monitoring and completion records.

The PIU will report achievement of this activity based on close monitoring of activity implementation and completion by consultants working in consultation with office of COW, DRWS and other stakeholders.

PIU M&E team.


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Number of people trained according to approved annual training plan

Number of people trained according to training plans approved annually for financing through the project, to be confirmed annually based on the training plan

Data will be monitored per semester.

PIU.

PIU compiles training data from all beneficiary agencies/recipients.

PIU M&E Specialist.

Annual customer satisfaction survey completed

The percentage of people in the project area that are satisfied with the quality of water supply services based on the Beneficiary Survey.

Beginning and End of project.

Beneficiary Survey ate commencement and end of project.

Data on this indicator will be taken from the findings of the Beneficiary Surveys at project commencement and end of project. the terms of reference for the Beneficiary Survey will be prepared before the Board approval date.

PIU will be responsible for the beneficiary survey, which will be carried out by an experienced consulting firm based on terms of reference acceptable to the Bank.

Percentage of women employed by WASCO

The percentage number of women employed by WASCO overall

Annually.

WASCO HR records will be the source of data to the PIU.

PIU will collect data from WASCO management, based on updated Human resource records.

PIU M&E staff will be responsible.

Number of institutions benefitting from the project

The number of sector institutions (including independent departments) benefitting from the project.

Annually

MOW and project data

Project monitoring data

Project M&E Specialist

Grievances addressed in line with existing Percentage of grievances Quarterly Grievance The grievance The project M&E team


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grievance redress mechanisms addressed in line with existing grievance redress mechanisms as proportion of total grievances received.

assessment.

redress mechanism (GRM) databases, including project and WASCO customer satisfaction data.

redress/responses will be recorded in line with GRM arrangements agreed under the project, and with WASCO Customer response data collected from the latter's Customer Management Department, and will be monitored and recorded by the project monitoring and evaluation team.

will be responsible for data collection from the respective project GRM and WASCO PIU secondees who will coordinate with the company's customer care department.

DLR 1.1: Technical data quality improvement and audit plan approved

Technical data quality improvement and audit plan approval confirmed through LEWA Board and PIU progress reporting.

Year 1




DLR1.2: Proportion of cumulative actions achieved

DLR 2.1: Financial data/reporting quality improvement action plan approved

Plan approved Year 1




DLR 2.2: Proportion of cumulative financial data quality/reporting actions achieved

Proportion of the approved improvement actions in the financial data/reporting quality improvement plan achieved.

Annual




DLR 3.1: Achievement of WASCO’s annual technical, financial and commercial

The indicator is the value of the composite index, which

Annually





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performance improvement targets is the aggregated weighted percentage score of the achievement of technical, financial, and commercial KPI targets.

ME IO Table SPACE

Disbursement Linked Indicators Matrix

DLI_T BL_MATRIX

DLI 1 DLR 1.1: Improved quality of WASCO technical data: Technical data quality improvement and audit plan approved

Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount

Process No Yes/No 0.25 0.32

Period Value Allocated Amount (USD) Formula

Baseline No

1 year Yes 0.25 See Annex 3 (Table 3.1)

2 years No 0.00 See Annex 3 (Table 3.1)





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DLI_T BL_MATRIX

DLI 2 DLR 1.2: Improved quality of WASCO technical data: Proportion of cumulative technical data quality improvement actions achieved


Output No Percentage 0.75 0.96


Baseline 0.00

1 year 0.00 0.00

2 years 60.00 0.25

3 years 80.00 0.25

4 years 95.00 0.25

5 years 0.00 0.00

DLI_T BL_MATRIX

DLI 3 DLR 2.1 Improved quality of WASCO's audited financial data/reporting - Financial data /reporting Quality improvement plan approved


Intermediate Outcome No Yes/No 0.25 0.32


Baseline No

1 year Yes 0.25 See Annex 3 (Table 3.1)



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5 years No 0.00

DLI_T BL_MATRIX

DLI 4 DLR 2.2 Improved quality of WASCO's audited financial data/reporting - Proportion of cumulative financial data quality/reporting actions achieved


Intermediate Outcome No Percentage 0.75 75.00


Baseline 0.75

1 year 0.00 0.00

2 years 60.00 0.25

3 years 80.00 0.25

4 years 95.00 0.25

5 years 0.00 0.00

DLI_T BL_MATRIX

DLI 5 Improved technical, financial and commercial performance of WASCO


Intermediate Outcome Yes Yes/No 1.00 1.30



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Baseline No

1 year No 0.00 See Annex 3 (Table 3.1)

2 years Yes 0.30 See Annex 3 (Table 3.1)




Verification Protocol Table: Disbursement Linked Indicators

DLI 1 DLR 1.1: Improved quality of WASCO technical data: Technical data quality improvement and audit plan approved

Description See Annex 3 (Table 3.2)

Data source/ Agency See Annex 3 (Table 3.2)

Verification Entity See Annex 3 (Table 3.2)

Procedure See Annex 3 (Table 3.2)

DLI 2 DLR 1.2: Improved quality of WASCO technical data: Proportion of cumulative technical data quality improvement actions achieved





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DLI 3 DLR 2.1 Improved quality of WASCO's audited financial data/reporting - Financial data /reporting Quality improvement plan approved





DLI 4 DLR 2.2 Improved quality of WASCO's audited financial data/reporting - Proportion of cumulative financial data quality/reporting actions achieved

Description Refer to Annex 3 (Table 3.2)

Data source/ Agency Refer to Annex 3 (Table 3.2)

Verification Entity Refer to Annex 3 (Table 3.2)

Procedure Refer to Annex 3 (Table 3.2)

DLI 5 Improved technical, financial and commercial performance of WASCO

Description Achievement of annual improvement targets





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ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN

COUNTRY: Lesotho Lowlands Water Development Project

1. Legal agreements. The MoF, representing the GoL as the Borrower, will sign a Financing Agreement for the IDA credit with the World Bank. A Subsidiary Agreement between the MoW and WASCO outlining mutual obligations regarding implementation of activities under Component 3 will also be signed.

2. Project oversight. The GoL will establish a Lowlands Water Supply SC to oversee preparation and implementation of the project. The SC will be chaired by the MoW (PS level) and constitute members (Senior Government/Administration Officers or Chief Executive Officer) from the MoF, MoDP, MoH, Lesotho Highlands Development Authority (LHDA), WASCO, DRWS, MLG, LEWA, and others as deemed relevant by the GoL. The SC will be charged with providing oversight and guidance on project implementation. It will also facilitate interinstitutional collaboration and will resolve legal and policy bottlenecks as necessary. The SC will meet at least twice a year and shall inform the Government (through the MoW) on progress and challenges the project faces. The PIU shall provide secretariat services for the SC and shall be responsible for preparing and disseminating minutes to key stakeholders, including the World Bank.

3. To ensure participation or representation the communities in the project areas there will be a representative of the communities (at an appropriate level to be decided in due course) in the SC. The SC will have responsibility for overall oversight and will resolve all policy and institutional bottlenecks affecting the project. It shall meet quarterly and will report project progress to the Government through the PS of the MoW. The CoW and the PIU manager will be ex officio members of the SC. The PIU shall form the Secretariat of the SC.

4. Project implementing arrangements. The project will be implemented by the MoW, which will be supported by a PIU. The MoW will be responsible for the signing of all contracts and authorization of payments to entities contracted to implement the project. It will be responsible for reporting to the MoF and financiers on project implementation status.

5. PIU. The PIU will constitute a core team of experienced individual consultants, including a project manager, a procurement specialist, an FM specialist, an M&E specialist, a social safeguards specialist, an environmental safeguards specialist, and a civil engineer with broad experience in design and implementation of WSS infrastructure, as well as representation from key sector agencies, including WASCO and the DRWS.

6. PMC. The PIU will be complemented by a PMC firm to support day-to-day implementation of the project. The PIU will be financed through IDA funding while the PMC will be financed by the EU. The functions of the PIU will be implementation of the project and reporting on project progress with the support of the PMC. The PIU staff will work closely with the PMC staff. The PMC shall be a firm with expertise to be agreed upon with the Government and the two funders.


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7. WASCO Project Team. Eligible expenditures using funds disbursed on the verified achievement of the DLIs in Component 3 will be managed by a team in WASCO. The team will be assessed by the World Bank during early project implementation. A WASCO team with capacity acceptable to the World Bank will be a disbursement condition for Component 3. The WASCO team will report progress to the PIU.

8. Further details on the roles of the different entities are provided in the following paragraphs.

Summary of Key Implementation Roles and Responsibilities

Project Steering Committee

• Reports to the stakeholders

• Comprises directors and state-owned companies of the MoW, nongovernmental organization representatives, key stakeholder ministry representatives (Finance, Planning, Agriculture, Environment, and others as deemed relevant by the GoL), and representatives of development partners

• Reports to the GoL (MoF and others) and international finance institutions (IFIs) (World Bank, EU, and EIB) on project implementation status

• Coordinates with other ministries around project implementation

MoW/CoW

• Signs all contracts with private entities to implement the project (works, services, goods)

• Authorizes payments to all private entities that have been contracted

• Reports to the GoL (MoF and others) and IFIs (World Bank, EU, and EIB) on project implementation status

• Coordinates with other ministries around project implementation PIU

Supports the CoW in the day-to-day implementation of Components 1 and 2 of the project by

• Bearing the responsibility in front of the client/promoter

• Reporting to the client and stakeholder in the format agreed with the client

• Reporting on financial status and forecast and disbursements

• Procuring and contracting private entities

• Managing all contracts (works, services, goods)

• Physically monitoring works (technical, environmental and social, and so on)

• Contributing to institutional analysis if necessary and requested PMC

Supports the PIU in the day-to-day implementation of the project by

• Reporting to the PIU and client in the format agreed with the PIU

• Reporting on financial status and forecast and disbursements

• Procuring and contracting private entities

• Managing all contracts (works, services, goods)

• Physically monitoring works (technical, environmental and social, and so on)


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• Providing additional support (on institutional analysis and capacity building) if requested in the TOR

WASCO Project Team

Supports the PIU in the day-to-day implementation of eligible expenditures financed by disbursements released to WASCO from verifiable achievement of the Component 3 DLIs

• Reporting to the PIU and client in the format agreed with the PIU • Reporting on financial status and forecast and disbursements • Procuring and contracting private entities • Managing all contracts (works, services, goods) • Physically monitoring works (technical, environmental and social, and so on)


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Figure 1.1. Project Implementation Organogram

Supports the PIU in the day-to-day implementation of the project:

Reporting

Financial status and forecast, disbursements

Procurement and contracting of private entities

All contracts management (works, services, goods)

Physical monitoring of works (technical, E&S, and so on)

Can provide additional support (on institutional analysis and capacity building) if requested in the

TOR

Conducts the day-to-day implementation of the project and advises hierarchy:

Reporting

Financial status and forecast, disbursements

Procurement and contracting of private entities

All contracts management (works, services, goods)

Physical monitoring of works (technical, E&S, and so on)

Contributes to institutional analysis if necessary

Secondees from WASCO, DWA, DRWS

Signs all contracts with private entities to implement the project (works, services, goods)

Authorizes payments to all private entities that have been contracted

Reports to the GoL (MoF and others) and IFIs (World Bank, EU, and EIB) on project

implementation status

Coordinates with other ministries around project implementation

Borrower Implementing Agency

MoW/CoW

PIU

(Includes Government staff and consultants and WASCO and DRWS

secondees)

PMCs

WASCO Project Team (Component 3)

Project Steering Committee


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Project Implementation Support Plan

9. Semiannual World Bank implementation support missions and short follow-up technical missions will focus on the following areas:

(a) Strategic support. Implementation support missions will meet with the relevant GoL project representatives to (i) review progress on the project’s activities; (ii) discuss strategic alignment of the project’s different activities, especially at the planning level, between the relevant stakeholders; and (iii) evaluate progress on cross-cutting issues such as M&E, training, communication, knowledge exchange, innovation, dissemination of project results and experiences, and coordination between the relevant stakeholders.

(b) Technical support. Implementation support will concentrate on ensuring the technical quality of bidding documents, the TOR, evaluation reports, construction plans, products delivered by consultants, and validation of the performance-based activities/targets. During construction and commissioning, technical supervision will be provided to ensure that technical contractual obligations are met. Regular site visits will be carried out during project implementation and will involve technical specialists as needed.

(c) Fiduciary support. Periodic procurement and FM support will be carried out by the World Bank semiannually or annually to (i) perform desk reviews of project interim financial reports and audit reports, following up on any issues raised by auditors, as appropriate; (ii) assess the performance of control systems and arrangements; (iii) update the FM rating in the FM Implementation Support and Status Report as needed; (iv) provide training and guidance on carrying out procurement processes in compliance with the Procurement and Anticorruption Guidelines and the POM; (v) review procurement documents and provide timely feedback to the PIU; (vi) carry out the post review of procurement actions; and (vii) help monitor project progress against the Procurement Plan.

(d) Safeguards support. The coordination that began during preparation will continue throughout project implementation, especially to ensure that the relevant safeguards concerns are included in the works financed under the project through due diligence from applications of the site-specific ESIAs, ESMPs, and RAPs and effective mitigation measures. Implementation support from the World Bank safeguard specialists will take place at least twice a year.

Table 1.1. Implementation Support Resource Estimates

Time Focus Skills Needed Resource Estimates

(Staff Weeks)

First 12 months

Project rollout, management, and implementation support coordination

Task team leads 6 per task team leader per year

Refine subcomponent activities and ensure quality of detailed designs

Task team leads/technical specialists

2 per task team leader per year

Social and environmental safeguards, including risk mitigation measures

Social and environmental specialist

4 per year


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Time Focus Skills Needed Resource Estimates

(Staff Weeks)

Technical and procurement review of TORs and bidding document

Task team leads, technical specialists, procurement specialists

6 per year

Fiduciary arrangements and FM systems FM specialist 3 per year

Promoting innovation in the project Task team leads/technical specialists

3 per year

Operational support Operations officer 6 per year

12 to 72 months

Procurement review and feedback of bidding documents and consultant contracts

Procurement specialist

6 per year

Technical review of TOR, technical reports, and bidding documents

Task team leads, technical specialists

6 per year

Non-lending TA, capacity and institutional strengthening efforts


4 per year

FM supervision FM specialist 3 per year

Social safeguards – supervision Social specialist 4 per year

Environmental safeguards – supervision Environmental specialist

4 per year

Project management, M&E, and project supervision coordination


8 per year

Operational support, M&E, lessons learned, progress and final reporting.

Technical specialists and operations officer

6 per year

Table 1.2. Skill Mix Requirements

Skill Needs for Supervision Comment

Task team leader Region based

WSS specialist Country based

FM specialist Region based

Procurement specialist Region based

Social specialist Country based

Environmental specialist Country based

Lawyer Region based

Disbursement officer Region based


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ANNEX 2: DETAILED PROJECT DESCRIPTION

COUNTRY: Lesotho Lowlands Water Development Project

1. Background. The LLWSS was designed to address the chronic shortage of potable water supply to the Lowlands area of the country and promote socioeconomic development to a design horizon of 2045. The original designs, which focused on bulk infrastructure only, were prepared with assistance from the EU in 2008. Under the LLWSS, the Lowlands area of Lesotho was divided into eight distinct zones covering all clusters of settlements with inhabitants of more than 2,500 persons. Accordingly, it covers urban, peri-urban, and rural areas. The original designs were completed in 2008. The first phase of investments constructed under the scheme comprised the multidonor-funded MDWSP, which covered Zones 4 and 5. With funding from WSIP APL2, the GoL, with the assistance of a consultant, has updated the designs of the bulk water infrastructure for the remaining zones of the scheme based on a revised design horizon to year 2045 (from 2035 used in 2008). The updated designs incorporate changes that have taken place in the target areas since 2008. The scope of work for the design update covered only the bulk water infrastructure, including the water intake, treatment plant, transmission pipeline, and associated infrastructure, and did not include detailed design and tender documentation for the distribution systems.

2. Based on the updated designs, implementation of the LLWSS program has been grouped into six packages, with two prioritized for the next phase of the program: Project Package 4 entailing Zones 6 and 7 (Mafeteng and Mohale’s Hoek) and Project Package 2 entailing Zones 2 and 3 (Hlotse and Maputsoe). The World Bank, through the current project, will finance investments in Zones 2 and 3 comprising water intake, water treatment works, transmission mains, pumping stations, reservoirs, and distribution networks. The EU and EIB will finance Zones 6 and 7.

3. Broader water resources context. The LLWSS for Zones 2 and 3 is to be implemented in two phases, with Phase I going to 2030 and Phase II going to 2045. The current project will finance only Phase I. Most of the schemes planned for Phase I, including the target project area (Zones 2 and 3), will draw water from river sources with Phase II demands augmented by dams. The Government has already identified potential sites for five multipurpose dams and made some progress in preparation. The MoW, with the assistance of the EU, has developed the TOR for the feasibility study of the five multipurpose dams, of which the Hlotse Dam is one. The Hlotse Dam will augment raw water supply in Zones 2 and 3 beyond Phase I. The GoL has further advanced preparation for the Hlotse and Makhaleng Dams (for Zones 2 and 3 and Zones 6 and 7, respectively) and the GoL has put aside some LSL 100 million (US$5–6 million) for feasibility studies for the five dams under the 2018 financial year. The proposed Hlotse Dam has also been included in a proposal to an external funder. The GoL plans to complete construction of the Hlotse Dam between 2030 and 2035. Until the Hlotse Dam is constructed, Zones 2 and 3 will benefit from releases from the LHDA dam network (Katse Dam) and an estimated 0.4 m3 per second is feasible during the dry seasons under the current Lesotho Highlands Water Project treaty. The Government has been advised to negotiate for higher releases of water beyond the current phase of the Lesotho Highlands Water Project treaty.


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Figure 2.1. Map of Lesotho Showing Distribution of Water Demand Zones

Source: World Bank Pre-appraisal Aide memoire, 2018

4. Investments in Zones 2 and 3 will target enhancing water security and resilience to recurrent droughts and climate change in the project areas. Target areas include the towns of Hlotse and Maputsoe and villages along the main pipe route. The villages along the main pipeline route include Khanyane, Hlotse, Tsikoane, Maputsoe, Ha Lesiamo, and Mpharane and areas surrounding them. Priority will be given to areas that already have a distribution network but no water, such as Tsikoane. Taking into account the available resources the components of the water supply system will be designed as follows: (a) water intake works, raw water pumping station, and conveyance system designed for capacity up to year 2045; (b) water treatment works to have total capacity by year 2045 of 50 mL per day but implemented in phases with Phase I (funded under this project) being 25,000 m3 per day for capacity up to year 2030; (c) transmission pipeline and main reservoirs that will extend from the water works in Hlotse to Maputsoe under this project and will be sized for demand up to year 2045; and (d) the drinking water distribution rehabilitation and extension in the areas covered, which will have a capacity up to year 2045.


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5. Detailed cost estimates for the project components are included at the end of Annex 2.

Component 1: Water Supply Investments in Zones 2 and 3 (Euro 59.8 million (US$68.3 million equivalent), of which IDA financing is Euro 57.4 million (US$65.5 million equivalent)

Subcomponent C1.1: Construction of intake and water works (Euro 19.1 million)

6. This will involve the construction of a water intake structure on the Hloste River along with a pumping station to pump the raw water to the raw water storage/sedimetation tank. The intake and raw water pumping station and pumping main will be designed for the 2045 design capacity of 50,000 m3 per day. The water works will be constructed in phases, with the first phase of 25,000 m3 per day covering demands up to the year 2030 being financed under the LLWDP. The feasibility of abstracting 25,000 m3 per day from the Hlotse River at Ha Setene to meet the demands up to 2030 and to estimate the downstream flow beyond the proposed intake point has been determined using a water balance approach. The water balance takes into account the following components: (a) the demands for Zones 2 and 3 for 2018, 2023 and 2030; (b) the long term dry period river flow; and (c) releases from the LHWP. The LWHP Treaty (Article 4) and Principles and Procedure for the Release of Water from the Lesotho Highlands Water Project (2007) allow for storage and draw down of water by Lesotho. Annually the GoL can draw down up to 5 MCM from the storage. Of the 5 MCM per year, 25 percent is allocated to the environment flows of the Muela River, the LHWP using about 10—12 percent of the base flow (inflow into dam) as IFR releases from the Highlands dams. The IFR downstream of the proposed intake has been conservatively taken as 15 percent of the river flow. So at 15 percent the IFR for the dry season flow is 0.032 MCM (1.1 mL per day). Thus the downstream flow from the water balance will far exceed the IFR. The other works that will be required include a clear water storage tank. The clear water storage could also be installed in phases with the first phase meant to cater to Phase I production having a minimum contact time of between one and two hours. The clear water pumping station at the water works will be designed for year 2045 capacity in terms of civil works and pipe and valve fittings, especially on the delivery side. However, the electrical and mechanical works for the pumping station will be installed for year 2030 capacity, but bulk power supply will be installed for 2045 capacity. It is envisaged that for capacity requirements up to 2030, three pumps will be installed, with two on duty and one on standby. The intake and water works will be implemented through a design-and-build contract. The draft bidding documents for the design-and-build contract have been prepared in line with the World Bank’s standard bidding documents for design-and-build contracts.

7. The TOR for the design-and-build contract will explore the feasibility of abstraction of irrigation water at the proposed intake site and provision of bulk raw water infrastructure up to the field edge for pilot small holder irrigation scheme(s) near the system. The detailed design of the bulk water supply system for irrigation, including the required raw water storage and irrigation network and construction of the same, would if found feasible, be financed through the SADP. The Irrigation Master Plan for Lesotho to be prepared under the SADP will include tasks for identification of potential sites for the pilot and estimation of the water requirements among other details.

Subcomponent C1.2: Bulk water transmission pipeline, pump stations and reservoirs (Euro 23.6 million)

8. This will finance the construction of a 26 km (500–850 mm diameter) transmission pipeline from the water works through Hloste to the existing Maputsoe 9 mL reservoir. The Phase I water supply


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scheme, to be financed under this project, will also supply some five villages along the route of the main transmission pipeline and settlements around them. It is proposed that there will be construction of service reservoirs around Ha Setene, Khanyane, Hlotse Town, Maputsoe, and Tsikoane. This will necessitate construction of branch lines totaling about 9.5 km in length with diameters ranging from 100 mm to 315 mm. The transmission system will include one main booster pumping station on the main line after the water works and two smaller pumping stations servicing selected settlements. It will also comprise two concrete reservoirs of 2.5 mL and 15 mL capacity each and pressed steel tanks (275 m3 capacity for two and 500 m3 for one).

Subcomponent C1.3: Distribution system (Euro 14.3 million)

9. This subcomponent will include construction and rehabilitation of distribution water mains and networks, including installation of customer and bulk meters, pressure loggers, household service connections, leakage reduction measures, and standpipes in villages. The exact extent of the new distribution systems has not been established in detail. This subcomponent will also target repairs and rehabilitation of priority pipelines with a high potential to reduce NRW and improve distribution system efficiency. The exact number of connections and the focus of the NRW reduction activities will be determined after the detailed design of the distribution system is carried out by a TA to be financed under the project. A provisional sum for rehabilitation of the existing pipelines and for the new systems has been allowed for under this subcomponent. WASCO plans to replace old customer meters with funding under the project as well as new bulk meters and pressure loggers to improve the baseline data on NRW for most of the supply areas of WASCO starting with the project areas.

Subcomponent C1.4: Maputsoe borehole rehabilitation (Euro 0.4 million)

10. This subcomponent will finance the testing and pumping equipment of selected boreholes in Maputsoe—both existing, but broken-down boreholes and exploratory boreholes that have high yield. The goal is to increase water security and resilience of the water supply system to climate change and droughts.

Component 2. Capacity Building, Institutional Strengthening and Project Management (Euro 10.9 million (US$12.4 million equivalent), of which IDA financing is Euro 6.5 million (US$7.4 million equivalent)

This component will strengthen sector institutions, support implementation of the LLWSS, and develop a comprehensive Strategic Sanitation Plan through financing of consultancy services, systems, and equipment to support three broad categories of activities:

Subcomponent C2.1: Project implementation support (Euro 8.6 million of which IDA financing is Euro 4.2 million)

11. This subcomponent will finance project management, including support to the PIU, with a core team of experienced individual consultants (project manager, procurement specialist, FM specialist, safeguards specialists, M&E specialist, and civil engineer); incremental operating costs of the PIU such as office costs and travel costs; support for selected activities linked to management of dam safety and/or related due diligence under the project required to ensure transfer of water to the Hlotse River during


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low seasonal flows;35 support for safeguards (including any additional studies as needed) and preparation, implementation, and monitoring of site-specific environmental and social safeguards for the water distribution network, and payment of compensation for PAPs and land;36 additional ad hoc consulting support to the PIU as may be deemed necessary by the MoW; and support for project communications.

Subcomponent C2.2: Support to sector institutions (Euro 1.1 million)

12. This subcomponent will finance institutional strengthening support to other sector departments. This will include support to the following institutuions:

a. Support to the DRWS (Euro 437,900). The DRWS is responsible for supporting local governments and communities in the management of rural water and sanitation services in rural areas. Since the project areas will include some rural villages, it is essential that the DRWS be fully engaged in supporting the relevant entities in project implementation. Project support to the DRWS will cover operational and policy support related to rural water supply provision and management, including ensuring that there is an effective interface between agencies and capacity building including relevant training.

b. Support to the DWA (Euro 87,600). The DWA is reponsible for monitoring, assessing, and allocating water resources under the office of the CoW. Project support to the DWA will finance activities related to strengthening water quality monitoring capacity, including monitoring to support environmental safeguards requirements on the Hlotse River, support related to consultations on water allocations, and relevant capacity building of DWA staff.

c. Support to the LBWSA (Euro 219,000). While the LBWSA as an entity does not exist yet, the GoL is in the process of reviewing options for management of bulk water services, and is considering establishing the LBWSA. The project will support the MoW in selected due diligence activities in conceptualizing the structure of the proposed LBWSA, including review of international experiences in bulk water supply agencies through knowledge exchange activities such as possible study tours to relevant agencies in other countries in the region.

d. Support to the CoW37 (Euro 175,200). Project support to the CoW will finance miscellaneous studies,38 including but not limited to review of the tariff structure to assess, among others, the bulk water tariff under the proposed LBWSA; and relevant training and capacity building activities for MoW staff;

e. Support to the LEWA (Euro 262,700). Project support to the LEWA will finance consultancy services, systems, equipment and activities aimed at improving the quality of

35 While management of the Katse Dam is the responsibility of the LHWP, the project has allocated some resources toward specific incremental activities that could be linked to the management of the releases toward the Lowlands scheme, including consultancy services, consultations, and support toward the POE. 36 Payment for compensation and land will be financed from GoL counterpart funds. 37 Additional support to the CoW directly for project implementation purposes is covered under Subcomponent C2.1. 38 Other studies will be determined during implementation and will be approved in consultation with the World Bank.


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technical data reported by WASCO, and associated technical data quality auditing which is needed to achieve the DLIs in Component 3.

f. Support to the MoDP (Euro 87,600). Project support to the MoDP will finance consultancy services, systems, and equipment to help the ministry improve oversight of donor-financed project implementation, including capacity building, TA, and provision of equipment.

Subcomponent C2.3: Technical assistance support to sanitation planning Euro 1.2 million)

13. Only 44 percent of Lesotho’s population has access to improved sanitation solutions (46 percent and 43 percent coverage in urban and rural areas, respectively).39 About 30 percent of households do not have access to any toilet facilities and practice open defecation.40 Access to reticulated sewerage is estimated at just 4 percent of the population in urban areas41 and mainly in the central business districts of Maseru and larger towns such as Maputsoe and Hlotse. A preliminary assessment of the sanitation situation in the project areas during preparation revealed similar concerns to the national-level assessments, including relatively low sanitation coverage and the poor state of sewerage and wastewater treatment facilities managed by WASCO. While some aggregated data on sanitation are available at the national level in Lesotho, many of the districts and local governments lack reliable disaggregated data or comprehensive diagnostics on the sanitation situation, constraining adequate sub-sectoral planning. There are, however, no clear sanitation diagnostics or reliable data for the project areas, highlighting the need for improved data management systems for sanitation, a comprehensive assessment of the current situation, and definition of key priorities to inform a national sanitation program.

14. Given the magnitude of needs related to sanitation in Lesotho and the need for significant resources to address them, the project, in view of resource and capacity42 limitations as well as the priority accorded to Water for Growth in the CPF, has made a strategic choice to focus the investments on water supply. At the same time the project will lay the ground for planning and preparation of a comprehensive sanitation program that the Government could implement through a separate future operation.

15. For urban areas, the Citywide Inclusive Sanitation approach will be adopted where technical solutions will consider the full sanitation service chain, that is, household containment, collection, conveyance, treatment, and safe disposal. The approach focuses on (a) embedding sanitation within the framework of broader urban governance and municipal services provision; (b) establishing clear roles and responsibilities, with accountability and transparency, and robust service delivery management; (c) delivering ‘safe management’ through the sanitation chain—for both on-site sanitation and sewers—to ensure separation of fecal contamination from people across the whole city; (d) focusing on outcomes rather than technologies—allowing for diversity of solutions and approaches; (e) basing decisions on

39 2017 UNICEF/WHO JMP Report. The 2014 DHS provides slightly higher numbers; 49 percent access to improved sanitation in urban areas and 51 percent access in rural areas, with 50.9 percent total. 40 Improved drinking water source and improved sanitation coverage data are from the 2017 UNICEF/WHO JMP. https://www.wssinfo.org/fileadmin/user_upload/resources/Lesotho.xls. 41 2014 Lesotho DHS Report. 42 Implementation of a comprehensive sanitation program will require substantial resources to address. It also involves a number of stakeholders, the MoW/DRWS, MoH, and WASCO, which will require a holistic engagement of all, increasing the complexity of implementation arrangements.


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secure operational budgets being available (always planning for O&M); (f) facilitating progressive realization, building on what is already in place; and (g) committing resources to training sector leaders and technicians of the future to solve complex problems rather than deliver fixed solutions.

16. This work will build upon the WATSAN policy and implementation strategies, update the existing sanitation master plan which mainly covers parts of Maseru, and strengthen the WSS information monitoring and management system. The TA will also support development of a medium-term sanitation program, based on updated sector diagnostics and preparation of master plans for select urban locations, including, but not limited to,43 Maputsoe and Hlotse. For the short- to medium-term high-priority works, feasibility studies, detailed designs, and technical specifications for bidding documents will be prepared.

17. The TA will also support the MoW in policy and institutional aspects relating to sanitation, including detailed action plans for implementation of rural sanitation and hygiene promotion and identification of strategies for a more targeted and nutrition-sensitive WASH approach aimed at reducing child stunting in Lesotho. Finally, the TA will support the GoL in developing a comprehensive industrial wastewater management and regulation strategy and action plan engaging relevant stakeholders.

Component 3. WASCO Performance Improvements (Euro 4.5 million (US$5.1 million equivalent), of which IDA financing is Euro 4.5 million (US$5.1 million equivalent))

Subcomponent C3.1: Support to WASCO (Euro 1.8 million)

18. Institutional strengthening support to WASCO. The core of this activity comprises change management44 support to WASCO senior management and its Board of Directors to improve the culture and performance of the company. The intention is for change to be driven from the top of the organization (Board and Senior Management) facilitated by experienced consultants. This is a change from previous support to WASCO which has focused predominantly on input-based consulting assignments which have failed to deliver results on the ground. This results-based capacity-building approach is complemented by Component 3 which will incentivize WASCO Board/Senior Management to deliver measurable improvements in performance. Further support to WASCO includes resolving issues surrounding asset valuations (a recurring challenge for financial auditing); improving the quality and reporting of financial data to move toward clean statutory financial reports; preparing detailed O&M plans for the project-financed infrastructure (to ensure a range of future operating arrangements have been considered and that WASCO is ready to take on the new assets on their completion); and designing and subsequently implementing annual customer satisfaction surveys to improve WASCO accountability and provide management with better information about customer views.

Subcomponent C3.2: Performance-based Disbursement Linked Indicators (Euro 2.6 million)

19. This component will finance three DLIs that will incentivize WASCO to (a) improve the quality of their technical data and thus improve management decision making and the regulatory interface; (b)

43 The full scope of the urban areas to be covered with detailed master plans will be agreed with the MoW during implementation. 44 Change management activities will support WASCO board, management, and staff in identifying and making needed organizational changes considering all aspects of water system sustainability to improve the efficiency and effectiveness of the company’s performance in achieving its service delivery mandate.

https://en.wikipedia.org/wiki/Organizational_change


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improve the quality of their financial data for improved management decision making, LEWA interface, and better statutory financial reporting; and (c) deliver improved technical and financial performance against annual targets set by the regulator (LEWA). The DLIs are described in more detail in annex 3.

20. This output-based DLI approach will build on the existing sector institutions and relationships which require strengthening to deliver on the promise of the original sector design. Thus, the LEWA and WASCO, and their associated Boards, will be required to commit to, and thereafter deliver on, agreed action plans. Only by achieving these plans, verified by independent audits, will the funds be granted to WASCO who will then design and implement a set of activities. These activities will be approved by the WASCO Board, will support the PDO, and will be implemented in accordance with World Bank safeguards and fiduciary policies.

21. Work toward the DLIs will be supported by a change management consultancy, with work divided into three phases. The first phase will focus on developing a clear understanding of the root causes of poor performance at WASCO and identifying and establishing an internal change team—a full-time group of four to six WASCO staff seconded from their duties for the duration of the assignment. The second phase will support the development of a dynamic action plan to guide change management while providing sufficient flexibility to adapt as needed. In the third phase of the consultancy, the internal change team carries out the action plan.

Component 4. Contingent Emergency Response Part (Zero Budget)

22. Following an Eligible Crisis or Emergency, the Borrower may request the World Bank to reallocate project funds to support emergency response and reconstruction. This component will draw from the uncommitted credit resources under the project to cover emergency response. An Eligible Crisis or Emergency is defined as “an event that has caused, or is likely to imminently cause a major adverse economic and/or social impact associated with natural or man-made crises or disasters.”45 The World Bank’s assistance may consist of immediate support in assessing the emergency’s impact and developing a recovery strategy or the restructuring of existing, or provision of new, IPF. This may be particularly relevant with the possible adverse impacts of ‘El Nino’ in the coming period. In all cases, the World Bank will adapt its rapid response in form and scope to the emergency’s particular circumstances and take into account the World Bank’s Country Partnership Strategy for the country. The POM includes a CERC Annex which lays out the provisions for activating and implementing the CERC—including the operational, fiduciary, and technical details of the CERC.

Table 2.1. Detailed Project Cost Estimates by Component

SUMMARY COSTS BY COMPONENT

Component 1 - Water Supply Investments in Zones 2 and 3 IDA (Estimated Euro million)

C1.1 Construction of Intake and Water Works 19.09

C1.2 Bulk Water Transmission Pipeline, Pump Stations, and Reservoirs 23.56

45 Eligible emergency is defined in OP 8.00, ‘Rapid Response to Crises and Emergencies’.


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C1.3 Distribution System 14.28

C1.4 Maputsoe Borehole Rehabilitation 0.44

Sub-Total 57.37

Component 2 - Capacity Building, Institutional Strengthening and Project Management

C2.1 Project Implementation Support 4.17

C2.2 Support to Sector Institutions 1.09

C2.3 Technical Assistance Support to Sanitation Planning 1.23

Sub-Total 6.49

Component 3 - WASCO Performance Improvement

C2.2 Support to WASCO 1.83

C3.1 Performance-based Disbursement Linked Indicators 2.63

Sub-Total 4.46

C4.1 Component 4 - Contingent Emergency Response Component 0.00

Grand Total 68.31

DETAILED COSTS BY SUBCOMPONENT

Component 1 C1.1 Hlotse Intake Works and Raw Water Pumping Station

Site Establishment

Access Road, Operator Facilities, Lab, etc. 0.88

Intake Structure + Raw Water PS and Rising Main 1.36

Erosion Protection Cut off Drains and so on 0.22

Water Treatment Plant 25 mL 13.14

Clear Water Tank 5 mL 1.05

Provision for Power Supply (Water Treatment Works + Pumping Station 1) 0.70

Telemetry & Supervisory Control and Data Acquisition (SCADA) System 0.44

Design Review and Supervision 1.31

Sub-Total 19.09

Component 1 C1.2 Transmission System

Main Transmission of 850/800 9.46

Main Transmission of 750 2.36


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Main Transmission of 500 1.58

Branch Lines - 100–315 3.00

Design and Supervision 1.31

Sub-Total 17.71

Component 1 C1.2 Boost Pump Stations

Pump Station 2124 m3/hr x 150 m Head 0.88

Pump Station 23 m3/hr x 90 m Head 0.18

Provision for Power Supply to Pump Stations 0.09


Sub-Total 1.23

Component 1 C1.2 Reservoirs

275 m3 Pressed Steel Tank 0.18

500 m3 Pressed Steel Tank 0.22

2,500 m3 Concrete 0.38

10,000 m3 Concrete 1.84

15,000 m3 Concrete 1.75


Sub-Total 4.62

Component 1 C1.3 Distribution

Khanyane 1.40

Hlotse 1.14

Tsikoane (Refurbish and Extend) 0.44

Maputsoe 5.25

Ha Lesiamo 1.40

Mpharane 0.44

Refurbish Network Hlotse & Maputsoe - Bulk Meters, Valves, NRW Equipment 2.63

National NRW Baseline (Bulk, Critical Customer Meters, Pressure Loggers) 0.88


Sub-Total 14.54

Component 1 C1.4 Maputsoe Borehole Rehabilitation


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Borehole Investigations and Testing

Supply, Install, Test, Pumps, Casings, MCCs, Ancillaries 0.18

Design and Supervision

Sub-Total 0.18

Component 2 C2.1 Project Implementation Support

PIU Team Engaged for 5-year Period 2.54

Operating Costs - Travel Vehicles - Office Set Up 0.40

Monitoring of ESMP & RAP (Zones 2 & 3) 0.61

Support for Activities Related to Dam Safety and Water Transfer 0.18

Support to the CoW - Including Ad Hoc Consultants 0.44

Sub-Total 4.17

Component 2 C2.2

Support to Sector Institutions - CoW 0.18

Operational and Policy Support to the DRWS 0.44

Support to the DWA 0.09

Support to the LEWA 0.26

Support to the Development of the LBWSA 0.22

Support to the MoDP Coordination 0.09

Sub-Total 1.09

Component 2 C2.3 Support to Sanitation Activities

Operationalize National WASH Strategy & Action Plan - Study 0.79

Urban Sanitation - Prepare Feasibility Study and Designs for High Priority Investments 0.44

Sub-Total 1.23

Component 3 C3.1 Support to WASCO

Change Management 0.79

Prepare Asset Valuation 0.18

Prepare O&M Plan, including Possible O&M Contracts 0.18

Coach to Board/Study Tours/Training 0.18

Financial Data & Reporting - Develop Plan and Complete 4 Years Audits 0.18


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Citizen Engagement Plan - Develop Plan and Complete 4 Years 0.23

Maturity Assessment before Midterm Review and Closing 0.11

Sub-Total 1.83

0.00

Component 3 C3.2 Disbursement Linked Indicators 2.63

Component 4 Contingent Emergency Response 0


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ANNEX 3: DISBURSEMENT LINKED INDICATORS (DLIS), DISBURSEMENT ARRANGEMENTS AND VERIFICATION PROTOCOLS

Table 3.1. DLI Matrix

DLI Total

Financing Amount

DLRa Baseline

Indicative Timeline for DLR Achievement

Year 1 Year 2 Year 3 Year 4 Year 5

DLI #1: Improved quality of WASCO’s technical data

DLR 1.1: Technical data quality improvement actions and audit plan approved

0.250 None Yes — — — —

DLR 1.2: Proportion of cumulative technical data quality improvement actions achieved

0.750 n.a. n.a. 60% minimum

80% minimum

95% minimum

—

Indicative allocated amount for DLI #1 (US$, millions)

1.0 — 0.250 0.250 0.250 0.250 —

DLI #2: Improved quality of WASCO’s audited financial data/reporting

DLR 2.1: Financial data/reporting quality improvement plan approved

0.250 None Yes — — — —

DLR 2.2: Proportion of cumulative financial data quality reporting actions achieved

0.750 n.a. n.a. 60% minimum

80% minimum

95% minimum

—


1.0 — 0.250 0.250 0.250 0.250 —

DLI #3: Improved technical, financial and commercial performance of WASCO

DLR 3.1: Achievement of WASCO’s annual technical, financial and commercial improvement targets

1.0 n.a. n.a. Composite index score 70% or greater

Composite index score 70% or greater

Composite index score 70% or greater

—


1.0 — — 0.300 0.400 0.300 —

Total Financing Allocated (US$, millions)

3.0 — 0.500 0.800 0.900 0.800 —

Note: a. DLR is a Disbursement-linked Result that supports the achievement of the DLI.


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Table 3.2. DLI Verification Protocol

DLR Definition/Description

of Achievement Scalability (Yes/No)

Protocol to Evaluate Achievement of the DLI and Verification

Data Source Verification

Entity Procedure


DLR 1.1: Technical data quality improvement and audit plan approved

A qualified entitya has prepared a technical data quality improvement and audit plan that is satisfactory to the World Bank and to the LEWA and WASCO. The plan will be approved in year 1 of the project and is expected to take three years to implement. The actions in the plan which are required to deliver the improved technical data quality will be of approximately equal importance and are unlikely to exceed 20 in number.

No

World Bank correspondence; minutes of LEWA and WASCO Board meetings

World Bank Submission of technical data quality and audit plan accompanied by no-objection from the World Bank task team leader and approval of plan by the Boards of the LEWA and WASCO. This DLI is not scalable.

DLR 1.2: Proportion of cumulative technical data quality improvement actions achieved

Proportion of the actions in the approved technical data quality improvement plan that are achieved

No

Technical Audit report

LEWA’s technical auditor

Technical auditor, following the approved audit plan, will certify the proportion of improvement actions achieved by WASCO according to the approved technical data quality improvement plan. The actions to be achieved will be cumulative. The proportion of cumulative actions achieved must exceed the minimum required in each year, specified in table 3.1. This DLI is not scalable.


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Entity Procedure


DLR 2.1: Financial data /reporting quality improvement plan approved

A qualified entityb has prepared a financial data/reporting quality improvement plan that is satisfactory to the World Bank and to the LEWA and WASCO. The financial data/reporting quality improvement plan will be approved in year 1 of the project and is expected to take three years to implement. The intent is to deliver an unqualified statutory audit by the end of the project. The DLR-related actions in the plan to deliver the improved financial data quality/reporting will be of approximately equal importance and are unlikely to exceed 20 in number.

No

World Bank correspondence; minutes of LEWA and WASCO Board meetings

PIU Submission of financial data quality plan accompanied by no-objection from the World Bank task team leader and approval of plan by the Boards of the LEWA and WASCO. This DLI is not scalable.


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Entity Procedure

DLR 2.2: Proportion of cumulative financial data quality/reporting actions achieved

Proportion of the approved improvement actions in the financial data/reporting quality improvement plan achieved

No

Financial audit report

WASCO’s financial auditor

Financial auditor will certify the proportion of improvement actions achieved by WASCO according to the approved financial data/reporting quality improvement plan. The actions to be achieved will be cumulative. The proportion of cumulative actions achieved must exceed the minimum required in each year, specified in Table 3.1. This DLI is not scalable.


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Entity Procedure

DLI #3: Improved technical, financial and commercial performance of WASCO

DLR 3.1: Achievement of WASCO’s annual technical, financial and commercial performance improvement targets

Value of composite index The composite index is the aggregated weighted percentage score of the achievement of KPI targets. The annual performance improvement targets will be approved by the LEWA Board as part of their ‘Determination of WASCO’s Tariff Application’. This is currently based on 10 KPIs but could be modified in any year. The weighting of the indicators, to come to a combined weighted value of 100 percent, will also be approved by the LEWA Board. In both cases, the expectation is for WASCO and the LEWA to agree on the targets and weightings before approval by the LEWA Board.

Yes

Technical and financial audit reports

LEWA’s technical auditor

Improvement targets and composite index to be approved by the LEWA Board each year for the year ahead. Technical auditor to evaluate WASCO performance according to the approved technical audit plan and the financial audit results to determine the value of composite index achieved. DLI linearly scalable subject to minimum value stated in Table 3.1 and maximum of 100%.

Note: a. A firm or an individual with experience in auditing technical data, preferably in the water sector. b. A firm or an individual with experience in undertaking statutory audits of corporate entities in Lesotho, preferably including WASCO.


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Eligible Expenditure Program (EEP).

1. EEP Description. The EEP will consist of operating costs of WASCO associated with the performance improvement program as outlined in the Project Operational Manual. Specific budget lines are to be elaborated in the Project Operational Manual. Eligible expenditures may include WASCO operating costs, salaries, IT systems for improved management of WASCO, efficiency enhancing M&E plant, efficiency enhancing equipment, vehicles for improved effectiveness of WASCO, minor remediation of existing works to improve service quality, replacement of old/failing pipes, particularly asbestos cement pipes[1], consultant support to management improvements, and training and workshops. These expenditures will be operationalized through identified budget line(s) of WASCO accounts.

2. Applicable policies and requirements. The World Bank Guidance Notes on IPFs with DLIs dated April 2018, World Bank policy and procedures for IPFs, including procurement, FM, safeguards policies and anti-corruption guidelines apply to this project. Consistent with IPF Policy, the World Bank ensures the efficiency of any expenditures it finances. In the case of salaries, WASCO will ensure that adequate accounting systems and controls are in place for personnel management. WASCO would need to provide documentation of controls over personnel management to the World Bank prior to disbursement. For operating costs and other expenditures listed above, World Bank fiduciary and safeguard policies will apply.

3. EEP reporting and auditing arrangements. WASCO will prepare annual Budget Execution Reports and make them available to the PIU Fiduciary staff for preparation of the EEP Statement, which will be incorporated into the IFRs and used to monitor implementation progress of the EEP. The EEP Statements will be audited annually by WASCO’s annual financial statement audit to confirm that EEPs were incurred under the agreed budget lines and are eligible for World Bank financing. The audited EEPs will be submitted to the World Bank. The World Bank will ensure that the eligible expenditure amount, as ascertained in the EEP Statement that will form part of the IFR submitted for disbursement, exceeds the DLR allocated amount. Reports from the financial and technical auditors, along with minutes of relevant meetings from the Boards of WASCO and the LEWA, will be concurrently shared with the task team and the PIU.

4. Verification of the EEP. To determine that expenditures under the project are eligible for reimbursement and have been incurred in compliance with the planning, safeguards and procurement arrangements provided for under the project, an annual DLI audit will be carried out by the technical and financial auditors with the objective of: (i) certifying the extent to which the eligible Expenditures under the year covered by the audit have been incurred in compliance with the World Bank’s safeguards and fiduciary arrangements and under the Project Operational Manual; and (ii) certifying that the DLIs for the year covered by the audit have been met. The DLI audit tasks related to the EEP verification would include but not be limited to audit of (i) planning and project preparation; (ii) procurement processes; (iii) contract management; (iv) social safeguards; and (v) environmental safeguards. The DLI audit would also include

[1] If AC pipes are to be replaced then their management will be based on international good practice which currently recommends leaving the pipes in the ground and laying new ones alongside the existing. The overall pipe laying will be based on the project ESMF.


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verification that any works implemented are in accordance with contract documents and that the quality of works comply with technical specifications and standards described in the bidding documents.

5. Fund flow. Approved DLR disbursements will be granted directly to WASCO in accordance with the project agreements. A disbursement condition for the DLR payments will be the establishment of a team in WASCO with appropriate qualifications (fiduciary, procurement, environmental, and social) to the satisfaction of the World Bank.

6. Operationalizing the previously discussed processes. Within the POM, the following approach is proposed:


7. A technical auditor will be selected under Component 2 of the project to prepare the technical data quality improvement and audit plan to a TOR drafted by the LEWA and with no-objection from the World Bank. The draft plan will be reviewed and agreed between the LEWA and WASCO and will be satisfactory to the World Bank. The final version will be approved by the Boards of the LEWA and WASCO. The technical data quality improvement and audit plan will be approved in year 1 of the project and is expected to take three years to implement. The DLR-related actions in the plan which are required to deliver the improved technical data quality will be of approximately equal importance and are unlikely to exceed 20 in number. 8. A technical auditor will be selected under Component 2 of the project to undertake an annual technical performance audit (under the LEWA’s supervision) according to the approved technical audit plan and will verify achievement of the actions in the data quality improvement plan—and hence whether the DLR payments are triggered. A budget will be allocated within Component 2 for hiring the firm or individual who would prepare the technical data quality improvement plan and for the technical auditors.


9. A financial auditor will be selected under Component 2 of the project (or be included within WASCO’s annual financial audit activities) to prepare the financial data/reporting quality improvement plan to a TOR drafted by WASCO and with no-objection from the World Bank. The draft plan will be reviewed and agreed between the LEWA and WASCO and will be satisfactory to the World Bank. The final version will be approved by the Boards of LEWA and WASCO. The financial data/reporting quality improvement plan will be approved in year 1 of the project and is expected to take three years to implement. The intent is to deliver an unqualified statutory audit by the end of the project. The DLR-related actions in the plan to deliver the improved financial data quality/reporting will be of approximately equal importance and are unlikely to exceed 20 in number. 10. As part of the annual statutory financial audit of WASCO, the auditor will verify achievement of actions in the approved data/reporting quality improvement plan—and hence whether the DLR payments are triggered. A budget will be allocated within Component 2 for the hiring the firm or individual who would prepare the financial data quality improvement plan and for the financial auditors.


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DLI #3: Improved performance of WASCO

11. The annual performance improvement targets will be approved by the LEWA Board as part of their ‘Determination of WASCO’s Tariff Application’. This is currently based on 10 KPIs but could be modified in any year. The weighting of the indicators, to come to a combined weighted value of 100 percent, will also be approved by the LEWA Board. In both cases, the expectation is for WASCO and the LEWA to agree on the targets and weightings before approval by the LEWA Board. Having the indicator weighting determined annually allows the regulator to emphasize particular elements of performance in any year. Achievement of the targets will be determined by the LEWA’s technical auditor, following the approved technical audit approach, and payments will be in accordance with DLR definitions.


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ANNEX 4: ECONOMIC AND FINANCIAL ANALYSIS

1. Economic analysis - methodology. The LLWDP is estimated to have an EIRR of 14 percent over a 20-year horizon. This is above the 6 percent hurdle rate recommended by the World Bank’s Sustainable Development Practice Group and is consistent with similar water supply infrastructure projects, where high initial capital investment is offset by significant long-term benefits and relatively low ongoing O&M expenses. The actual usable life span of the infrastructure financed by the project is estimated to be significantly longer than 20 years, so the effective EIRR is likely to be higher. However, unlike similar water infrastructure projects, in the LLWDP, the project benefits are predominately driven by increased economic activity from industrial consumers rather than household consumption.

2. Benefits for the economic analysis are estimated as follows. Note that TA to WASCO and investments in NRW reduction are not included due to the challenges in effectively estimating the economic impacts of these activities. All urban households in Maputsoe and Hlotse are assumed to already have access to improved water supply, either through WASCO or informal vendors. At the beginning of the project, all households are assumed to consume 31 m3 per year. Due to limited water availability, all households supplement 70 percent of this water supply with expensive informal sources. Under the ‘with project’ scenario, households are able to meet more of their water supply needs through piped service from WASCO, due to the improvement in water availability through new bulk water infrastructure and TA to WASCO. Consumption increases to 70 m3 of water per year per household, with 10 percent of this supplied by informal sources. Under the ‘without project’ scenario, the percentage of total water consumed continues to decline due to the further deterioration of WASCO’s infrastructure. Benefits are estimated as there is a difference in cost between WASCO tariffs and fees charged by informal vendors. The total estimated value of these benefits over 20 years in 2018 dollars is US$2 million.

3. Of the rural households in the project area, 73 percent currently have access to improved water supply, while others have access to unimproved sources, typically surface water. Under the ‘with project’ scenario, this is forecast to improve to 95 percent by the year 2026. Under the ‘without project’ scenario, this is assumed to increase much more slowly, eventually reaching 87 percent by the year 2049. Benefits under the project are drawn from the original economic evaluation prepared by the design consultant and are estimated solely for households without current improved access and include cost savings for households due to reductions in mortality, health care gains, productivity increases, and time savings from fetching water over shorter distances. These benefits total approximately US$15 per year per household. The total estimate value of these benefits over 20 years in 2018 dollars is US$2 million.

4. Industrial customers, particularly in Maputsoe, are important beneficiaries under the project and contribute the majority of benefits. While textiles and other light manufacturing are a key employer and an important element of the Lesotho economy, limited water resources have affected their ability to grow and have deterred companies from investing in Lesotho. Under the ‘with project’ scenario, the number of industrial customers increases from 23 to 33 by the year 2039, as does total water consumed. Under the ‘without project’ scenario, the number of industrial customers is assumed to decline, due to the further deterioration of WASCO’s infrastructure. These customers are all assumed to focus on textile production for export. Based on data from South Africa’s Trade Law Centre, textile firms in Maputsoe’s industrial estates have average annual sales of approximately US$6 million per year each, representing more than a third of total production. The analysis assumes that under the ‘with project’ scenario, these firms will


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see an increase in sales of 2 percent per year, half of which can be attributed to increased access to water. Under the ‘without project’ scenario, sales decline 1 percent per year, driven by limited and intermittent water supply causing the Lesotho textile industry to become increasingly uncompetitive. Benefits are estimated as the difference in annual revenues for industrial customers is attributable to increased water supply. The total estimated value of these benefits in 2018 dollars is US$471 million. However, limited data are available on these firms and water supply is only one of a number of factors affecting the industry. The EIRR is extremely sensitive to these benefits, even if the actual benefits are 45 percent lower than these estimates, the project will still meet the hurdle rate of 6 percent. In addition, the economic analysis includes only the direct economic benefits and does not include potential multiplier effects from new jobs created, subcontractors and vendors serving the textile firms, and other sources.

5. The shadow price for carbon was also used to estimate the economic value of emissions avoided under the project. The total estimated value of these benefits through 2039 in 2018 dollars is US$4.5 million. For the urban water supply system expansion under Component 1, the switch from tanker trucks to expanded use of the piped WASCO system is estimated to experience net emissions of −93,559 tCO2-eq due to reduced fuel consumption. Expansion of the rural water supply system under Component 1 will see net emissions of 2 tCO2-eq over 27 years, which rounds down to 0 tCO2-eq on an annual average basis. There are also NRW reduction activities under Component 1 that will likely yield energy efficiency gains, but the available data were not disaggregated in a way to allow for an analysis of the net emissions from NRW reduction in isolation from the other water supply activities. The net emissions from the urban water supply expansion activities break down as follows: 2 tCO2-eq from water conveyance, 13 tCO2-eq from electricity use for conventional water treatment, 9 tCO2-eq from potable water distribution, and −93,583 tCO2-eq from reduced tanker usage. For the rural water supply activities, the allocation of net emissions is 0 tCO2-eq from water conveyance, 1 tCO2-eq from electricity use for conventional water treatment, and 1 tCO2-eq from potable water distribution.

6. WASCO - Project financial analysis. Although the LBWSA is still in the initial design stages, the rates proposed by the design consultant have been used as a proxy for costs. At the full cost-recovery bulk water tariff determined by the design consultant (LSL 19.6 per m3), the project is anticipated to have a negative NPV for WASCO of US$8.3 million over a 10-year time horizon, using WASCO’s official discount rate of 10 percent. If the bulk water tariff is set to cover only O&M (LSL 6.2 per m3), the project will have a positive NPV of US$3.8 million. Project financial analysis is based on the following assumptions:

• Distribution networks can begin accepting new customers in year 3 of the project.

• Technical losses in Zones 2 and 3 decline gradually over time from 25 percent to 18 percent due to the improvements in transmission infrastructure, WASCO capacity building, and investments in water leakage reduction.

• As water availability increases and WASCO capacity increases, the number of household connections increases in line with population growth, from 10,232 customers to 16,245 customers in 2028. Consumption is also assumed to increase as water availability and quality improves.

• The number of industrial customers is assumed to increase gradually over time, from 23 to 33 customers. As water availability increases, consumption is assumed to increase from the current level


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of 3,500 m3 per year per customer to 80,000 m3 as textile firms shift to more water-intensive processing activities.

• Consumed but unbilled water is assumed to decline gradually over time as WASCO capacity improves.

• Fixed costs are held constant, with 11 percent of WASCO’s total fixed costs allocated to the project area.

• Variable costs include the bulk water tariff, estimates for repairs and maintenance, costs for establishing new connections, and bad debt expenses (due to uncollected bills that are written off).

• Repairs and maintenance are estimated at LSL 1.18 per m3, based on historical financial data from WASCO. Annual write-offs for bad debt are estimated at 3 percent.

• Tariffs and connection fees charged by WASCO are held constant at their real 2018–2019 levels.

7. WASCO - Analysis of current financial status. WASCO has historically benefited from the Government funding for most of its investments. These investments do not add to WASCO’s actual costs but have an implicit cost for the Government. The strong financial performance of WASCO is in part due to its reliance on the Government grants for most of its capital investments. The Government plans to transition WASCO to full cost recovery, and it will affect WASCO’s operational cost and investment plans. As illustrated in the project financial analysis, the LLWDP will have significant negative financial impacts on WASCO. If full cost recovery of the infrastructure financed under the project is one of the goals, tariffs will need to increase, particularly for industrial customers.

8. Based on the last three years’ financial statements, there has been improvement in WASCO’s operating performance. In 2015, WASCO incurred an operating loss of LSL 6.6 billion (operating loss of 3.4 percent) and since then has made significant progress to reach an operating profit of LSL 2.3 billion (operating profit of 1.1 percent) in 2016 and LSL 7.5 billion (operating profit at 3.1 percent) in 2017. Overall profitability in 2017 was heavily influenced by an LSL 1.6 billion adjustment account. There is no explanation in the annual report regarding details of this account as well as the significant variance compared to the 2016 entry. In both 2016 and 2017, the auditors provided an adverse opinion, indicating that the financial statements are misrepresented and misstated and do not accurately reflect WASCO’s financial performance and health.

9. Operating cost coverage ratio (excluding depreciation and stock adjustment) is 1.16 percent for 2017. Based on information from the 2016–2015 annual report, the collection rate has improved and averaged 1:1 ratio of collection/billing ratio, primarily due to efforts to increase collection on past-due accounts. Partly as a result of this, WASCO’s liquidity and cash position are at an acceptable rate. The current ratio of above 1 indicates that the company has adequate liquidity to meet its current liabilities.


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Table 4.1. Key Metrics

2015 2016 2017

Trade and other receivables (Maloti) 84,946 181,822 107,401

% increase 18 114 −41

Accounts payable 66,050 163,648 92,800.00

% increase −6 148 −43

Sales-to-assets (%) 14.45 14.09 15.41

Return on assets (%) −0.23 0.42 1.04

Return on investment (%) −0.28 0.57 1.31

Accounts receivable turnover 2.30 1.20 2.23

Accounts payable turnover −0.10 0.01 0.08


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ANNEX 5: FIDUCIARY ASPECTS - FINANCIAL MANAGEMENT, DISBURSEMENTS AND PROCUREMENT

1. The FM assessment was carried out in accordance with the World Bank’s Operational Policy 10.00 and the Financial Management Manual issued by the Financial Management Board on March 1, 2010. The objective of the assessment was to determine whether the project implementing units within the ministry and WASCO has acceptable FM arrangements, which will ensure (a) that the project funds are used only for the intended purposes in an efficient and economical way; (b) the preparation of accurate, reliable, and timely periodic financial reports; and (c) safeguard of the assets.

2. The overall conclusion of the FM assessment is that the project’s FM has an overall risk rating of Substantial and the FM arrangements satisfy the World Bank’s minimum requirements under the World Bank’s policy and procedures on FM as per Investment Project Financing Policy and Directive.

Country Issues

3. While the discipline of Public Financial Management (PFM) has seen development in the last few years, there is still a general lack of effective systems, capacity, and experience. Work has started on the development of a new legal framework, methodologies, and systems for budget, budget execution, accounting, reporting, and oversight, but actual capacity at the moment remains largely weak. The ability of the Government to attract and retain qualified FM staff remains under pressure and the World Bank-assisted projects have therefore traditionally relied on the outside advisors (finance, procurement, and technical) to assist projects in their implementation efforts. To address the weakness in critical PFM issues, the Government is implementing a Public Financial Management Reform Action Plan (PFMRAP), with the support of the World Bank, EU, African Development Bank (AfDB), and international Monetary Fund (IMF). This program seeks to strengthen fiscal management institutions, accountability, and oversight for improved service delivery.

4. For the project, the implication at this time is that full utilization of the GOL PFM system is not yet

possible. An element that will be relied upon is the independent audit by the Office of the Auditor General.

Risk Assessment and Mitigation

5. The table below summarizes the results of the risk assessment and the mitigation measures.


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Table 5.1: Financial Management Risk Assessment and Mitigation

Description of Risk Risk Mitigation Measures

Incorporated in Project

Implementation

Condition of

Effectiveness

(Yes/No)

Residual

Risk/Risk

Rating

INHERENT RISKS

Country Level

There are still notable challenges in

PFM reforms, namely, the roll out

of the IFMIS and implementation of

the PFMRAP.

The Government has acknowledged these challenges and action plans have been identified with the support of the donors to work on these challenges.

No S

Entity Level

The entities may not be able to

meet the FM requirements due to

lack of FM capacity.

The PIU will be established at the

CoW no later than 15 days after

effectiveness to manage

Components 1 and 2 of the

project, and experienced and

qualified accounting staff will be

recruited.

WASCO has adequate accounting

staff handling FM issues as the

entity.

Yes S

Project Level

This is the big infrastructure project

that could lead to inaccurate

budgeting of the expenditures.

Contract variations will be closely

monitored, and corrective actions

taken.

No S


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Implementation

Condition of

Effectiveness

(Yes/No)

Residual

Risk/Risk

Rating

Overall Inherent Risk Residual Risk: S

CONTROL RISK

Budgeting

Risk that realistic annual budgets

may not be prepared.

The annual budgets will be

prepared based on the GoL’s

policy guidelines and regulations.

The procedures for preparation

of annual budget and forecast (to

be included in the interim

unaudited financial reports) will

be documented in the Financial

Procedures Manual.

No S

Accounting and Financial Reporting

The existing accounting system

(IFIMIS) may not be capable of

producing necessary reports to

monitor and manage the project

funds.

A conventional accounting

package will be installed,

customized, and tested before

effectiveness. Accounting policies

and procedures, including a chart

of accounts, will be documented

in the Financial Procedures

Manual.

Yes S


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Implementation

Condition of

Effectiveness

(Yes/No)

Residual

Risk/Risk

Rating

Internal Control

Risk that some internal control

procedures may not be observed

by the project staff.

Policies and procedures to be

employed by the implementing

entities will be documented in

the Financial Procedures Manual

and management letters will be

reviewed to conclude on the

effectiveness of the internal

control environment.

No M

Funds Flow

No identified risk as the funds will

flow through the Designated

Account.

No L

Auditing

No identified risk.

The GoL projects have been

submitting acceptable audit reports

on time.

No L

Overall Control Risk Due to the fact that the FM specialist has been selected but not

yet appointed, and the accounting system has not yet been

procured, the FM risk is Substantial.

Overall Risk Substantial

Not: H – High; S – Substantial; M – Moderate; L – Low


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Procurement

6. All procurement to be financed under the project will be carried out in accordance with the World Bank Procurement Regulations for IPF Borrowers (dated July 2016), revised November 2017 and August 2018, the provisions stipulated in the Legal Agreement, and the ‘Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD and IDA and Grants’, dated July 1, 2016 (the Anticorruption Guidelines). Project procurement will be carried out by the procurement unit of the CoW, which is currently supporting WSIP APL2, until the full complement of the new PIU structure for the proposed project is in place.

7. A procurement capacity and risk assessment was carried out by the World Bank for the CoW to review

the organizational structure for implementing the project and the interaction between the project’s staff responsible for procurement duties and management of the commission. The Procurement Risk Assessment and Management System (PRAMS) was finalized. A preliminary assessment of the current PIU under the CoW identified the following key issues: (a) lack of adherence to Procurement Plan timelines may lead to implementation delays and weak contract monitoring which may impede speedy resolution of contractual matters; (b) limited experience with infrastructure procurements; and (c) the procurement unit requires strengthening of their procurement and contract management capacities. Based on the assessment and taking note of the role and responsibility of the commission responsible for procurement, the procurement risk rating is Substantial. The commission will require strengthening of its procurement and contract management capacities.

8. Preliminary risk mitigation measures based on the discussion and preliminary assessment include (a)

hiring a procurement specialist with experience in infrastructure procurements, funded under the project, and putting in place a contract management plan for major contracts; the CoW has already initiated the process of hiring the procurement specialist and a contract negotiation is ongoing with the selected candidate and (b) training new and current staff in World Bank Procurement Regulations. The new PIU will also be strengthened through the support of the PMC firm hired under EU financing.

9. A Project Procurement Strategy for Development (PPSD) was developed to determine the approach

to market, the selection methods, evaluation options, and any other sustainability considerations that may need to be included. The PPSD considered this and other factors in determining the Procurement Plan, especially the packaging. Further details on Procurement arrangements are provided in Annex 5.

10. The implementing agencies have prepared an acceptable Procurement Plan, which will be uploaded in the new Systematic Tracking of Exchanges in Procurement (STEP) system, a planning and tracking system that will provide data on procurement activities, establish benchmarks, monitor delays, and measure procurement performance. The Procurement Plan includes (a) a brief description of the activities/contracts to be procured during the first 18 months of project implementation; (b) the approach to market and selection methods to be applied; (c) the cost estimates; (d) time schedules; and (e) the World Bank’s review requirements. Procurement arrangements for the CERC will be described in the Project Operational Manual.

11. The Lesotho Procurement Regulations of 2007 have been assessed and indicate that the country’s


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regulations are generally consistent with international best practice, although some weaknesses were identified, which should be mitigated through adequate measures to ensure that (a) there is adequate advertising in national media; (b) procurement is generally open to eligible firms from any country; (c) contract documents have an appropriate allocation of responsibilities, risks, and liabilities; (d) contract award is published; (e) the national regulations do not preclude the World Bank from its rights to review procurement documentation and activities under the financing; (f) an effective complaints review mechanism is implemented; and (g) records of the procurement process are maintained.

12. The request for bids/request for proposals document shall require that bidders/proposers submitting

bids/proposals present a signed acceptance at the time of bidding, to be incorporated in any resulting contracts, confirming application of, and compliance with, the World Bank’s Anticorruption Guidelines, including without limitation, the World Bank’s right to sanction and the World Bank’s inspection and audit rights. With the incorporation of the abovementioned provisions, the Lesotho Procurement Regulations will be acceptable to be used under those procurements using the open national approach not subject to the World Bank’s prior review as agreed with the World Bank in the approved Procurement Plan.

13. Procurement of works. Procurement of works will include procurement of water intake, water

treatment, transmission mains, and reservoirs and pumping stations and construction and rehabilitation of distribution infrastructure. It is envisaged that the large works packages will be procured through an open international approach to the market.

14. Procurement of goods. Goods to be procured under this project will include valves and meters.

Procurements while approaching the international market will be done using the World Bank’s standard procurement documents. Procurements while approaching the national market will be done using the national standard bidding documents, subject to incorporation of the abovementioned provisions, with an additional annex to address the World Bank’s Anticorruption Guidelines and ensure universal eligibility.

15. Procurement of consultancy services. Consulting services to be procured under the project include

hiring of firms to carry out studies, assessments, designs, and supervision of works and related activities. Hiring of individual consultants will be limited to any international consultant(s) required for project implementation.

16. Operating costs. These items will be procured using the Borrower’s national procurement and

administrative procedures acceptable to the World Bank, including selection of project implementation support personnel.

17. Record keeping. All records pertaining to award of bids, including bid notification, register pertaining

to sale and receipt of bids, bid opening minutes, bid evaluation reports and all correspondence pertaining to bid evaluation, communication sent to/with the World Bank in the process, bid securities, and approval of invitation/evaluation of bids would be retained by the respective departments and also uploaded in STEP.


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18. Disclosure of procurement information. The following documents shall be disclosed: (a) a Procurement Plan and updates; (b) an invitation for bids for goods and works for all contracts; (c) request for expression of interest for selection/hiring of consulting services; (d) contract awards of goods, works, and non-consulting and consulting services; (e) a monthly financial and physical progress report of all contracts; and (f) an action taken on the complaints received on a quarterly basis.

19. The following details shall also be published on the United Nations Development Business online and

the World Bank’s external website: (a) an invitation for bids for procurement of goods and works following open international market approaches; (b) request for expression of interest for selection of consulting services following open international market approaches; and (c) contract award details of all procurement of goods and works and selection of consultants using open international market approaches.

20. Fiduciary oversight by the World Bank. The World Bank shall prior review contracts according to the

prior review thresholds set in the PPSD/Procurement Plan. All contracts not covered under prior review by the World Bank will be subject to post review during implementation support missions, including missions by consultants hired by the World Bank or through supreme audit institutions as part of the financial audit. The World Bank may, at any time, conduct independent procurement reviews of all the contracts financed under the credit.

21. Contract management. High-risk and high-value procurements will be identified for increased

contract management support and indicated in the Procurement Plan. The department will develop key performance indicators (KPIs) for such identified contracts and the KPIs will be monitored during the actual execution of contracts. The World Bank team will provide additional due diligence and independent review of the contract performance of such identified procurements. A fully staffed PIU of the department will be responsible for overall project/contract management. The team will be ably assisted by a multiskilled project management team that will be engaged to provide overall implementation support and monitor all works, goods, and consultancy contracts.


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ANNEX 6 MAP OF LESOTHO