Rural Water Supply and Sanitation: Reaching SDG 6 in Eastern Europe, the Caucasus and Central Asia by OECD

Rural Water Supply and Sanitation

Reaching SDG 6 in Eastern Europe, the Caucasus and Central Asia

Discussion Paper

GREEN

ACTION TASK FORCE

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Rural Water Supply and Sanitation: Reaching SDG 6 in Eastern Europe, Caucasus and Central Asia DISCUSSION PAPER

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PUBE

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Acknowledgements

This study was undertaken by the OECD with the financial support of the Government of Germany. Their contribution is gratefully acknowledged. The principal authors of the discussion note are Nils Junge and Hannah Rosenthal. At the OECD GREEN Action Programme Task Force secretariat, Alexandre Martoussevitch provided essential oversight and inputs into this report; Matthew Griffiths reviewed the draft and provided valuable comments; and Tatiana Efimova, shared additional insights. The authors are grateful for the information and insights provided by Bakyt Baisakov and Iskanderbek Ismailov (Kyrgyzstan), Jonathan Hecke (Switzerland), Yulia Ahmadieva and Oleg Konon (Belarus), and Valery Syundyukov (Kazakhstan).

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Table of contents

Acknowledgements

Acronyms

Executive summary References Notes

1 Introduction Objectives Context References Notes

2 Barriers Overview References Notes

3 Data on WSS access Introduction Monitoring access and data quality References Notes

4 Affordability and costs References Notes

5 Strategic and mid-term planning for WSS References Notes

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6 11 11

12 12 13 15 16

17 17 22 23

24 24 25 27 27

29 31 31

32 34 35

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6 Legal and regulatory frameworks References Notes

7 Financing Overview Financing options Tariffs Taxes (government budget) Transfers (ODA) Reducing costs and the importance of context-specific approaches Using sustainable business models including private sector participation References Notes

8 WSS dashboard: Concept and example Objectives Format Possible next steps References

9 Conclusions EECCA countries’ particular challenges The scaling challenge Integration into policy and budgetary frameworks WSS and other sectors Challenges specific to the EECCA region Looking ahead References Notes

36 38 38

39 39 40 40 40 41 41 42 43 44

45 45 46 48 48

49 49 50 50 50 51 51 52 52

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Acronyms

ADB CBM CBO EAP Task Force EBRD EU EUWI DFI GIZ HH IFI IO IWRM JMP NDP NDS NPD ODA OECD O&M RWSN RWSS SDC SDG UNECE USAID WB WSS

Asian Development Bank Community-Based Management Community-Based Organisation Task Force for the Implementation of the Environmental Action Programme (for Central and Eastern Europe) European Bank for Reconstruction and Development European Union; European Union Water Initiative Development Finance Institutions German Technical Assistance Agency Household International Financial Institution International Organisation Integrated Water Resources Management Joint Monitoring Program National Development Plans National Development Strategy National Policy Dialogue Official Development Assistance Organisation for Economic Co-Operation and Development Operations and Maintenance Rural Water Supply Network Rural Water Supply and Sanitation Swiss Development Co-Operation Sustainable Development Goal United Nations’ Economic Commission for Europe United States’ Agency for International Development World Bank Water Supply and Sanitation

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Executive summary

Introduction Context The global community is just nine years away from 2030, the target year for the United Nations Sustainable Development Goals (SDGs). If current trends hold, however, many countries in the Eastern Europe, Caucasus and Central Asia (EECCA) region will likely not reach their goals in the drinking water and sanitation sub-sectors (SDG 6.1 and 6.2). Despite apparently high access rates to improved Water Supply and Sanitation (WSS) in EECCA countries (at least in urban areas) as reported by the Joint Monitoring Programme (JMP), one of the most persistent and challenging issues in the region remains low access to reliable supply of drinking quality water and to proper sanitation in rural areas. Rural WSS indicators lag behind urban indicators, which is where the gap in reaching SDG 6.1 and 6.2 is especially significant. Planning, financing and implementation of water supply and sanitation systems are all more challenging outside of urban areas, where populations are smaller, poorer, and more dispersed. Concerns related to water access and hygiene have taken on even greater urgency in light of the risks created by the ongoing COVID-19 pandemic.

Objective To take stock of the WSS situation in the EECCA region1, with a focus on rural areas and country-level access and service indicators. The note reflects on the key challenges, barriers, and opportunities for achieving SDG 6.1 and 6.2 targets. It relates these to the respective legal and regulatory frameworks, sustainability issues, domestic financing and ODA.

Barriers Although there is significant variation across the EECCA region, administratively, financially, and resourcewise in how drinking water supply and sanitation services are provided, many of these countries face similar challenges in providing safe and affordable water and proper sanitation for all. Rural water and sanitation systems often have fundamentally different needs and capacity levels from urban systems. This is true for their infrastructure, geography-topography, costs, and customer base. Furthermore, existing regulations intended for urban WSS systems and infrastructure can impede rural WSS development. Other barriers include: •

low political priority and lack of a coherent strategy

•

lack of regulation that allow for feasible and cost-effective solutions

•

poor existing infrastructure

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unrealistic construction and consumption norms resulting in infrastructure overcapacity

•

maintenance and operational inefficiencies

•

high costs and low affordability

•

difficulty accessing capital and financing

•

regional disparities

Data on WSS access Globally, access to essential water and sanitation services remains low in many developing countries, though much progress has been made. The WHO estimated in 2015 that globally 8 out of 10 people without improved drinking water sources, and 7 out of 10 people without improved sanitation facilities, live in rural areas.2 Lack of access to safe water results in serious medical costs and major economic losses 3, and WSS-related diseases are a primary cause of death among children under five. 4 Disparities are highest across the rural-urban divide, where rural residents face higher barriers – and costs – to accessing water and sanitation facilities. The access data (SDG 6.1 and 6.2) reported by countries to international organisations don’t necessarily reveal the full picture or reflect water and sanitation quality, and is often incomplete (e.g. often do not reveal widespread problems with reliability of supply, quality of tap water, or affordability of the service). Moreover, access rates reported to JMP sometimes do not match with access rates reported by countries to development partners or in different publications. Such inconsistencies in reported figures observed even in countries with generally very good statistics (see Chapter 3) might be assigned partly to differences in terms and definitions used by JMP and other actors. But in some countries there might be also incentives to appear better than their neighbours. In any case, over-reporting has several negative consequences: domestically, it does not help attract political attention to, and mobilise political support and public funds for addressing, key issues in the sector; internationally, it does not help attract ODA for the sector if DPs assign low priority to WSS compared to other sectors facing bigger issues.

Affordability and costs Affordability is an issue in several EECCA countries, especially topical in rural areas where household income is typically lower. Ability-to-pay (ATP) and willingness-to pay (WTP) assessment following wellestablished methodologies developed by the EBRD and OECD help prevent from over-estimating this issue by populist politicians. In the EECCA region unit costs (per m3 or per person served) tend to be high compared to the level of service provided to end-users. Financial costs. Rural communities, which lack access to improved WSS services, face different cost structures from urban areas, where tariffs account for most water expenses. Many rural water users rely on different water sources for different purposes because of unreliability and high costs. Non-financial costs. The cost of not having access to clean water can manifest itself in poor health and reduced educational achievement, which in turn depress current and future earnings. Overall, households that bear the costs of non-piped water services tend to incur higher per unit costs than households with piped connections. When aiming for universal access, governments need to think about the affordability of WSS systems or self-supply that they incorporate into their policies and legislation. (A threshold of around 3-5% of disposable household income is typically used to define affordability, but this varies by country and community context.) Otherwise, implementation will be too costly to cover all those who need it. Low-

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8 income customers can be protected, but the capacity of existing, not always well-targeted, social support systems in many EECCA countries is very limited. 5

Strategic and mid-term planning Good strategic planning helps authorities responsible for WSS systems navigate the many financial and operational barriers that hinder affordable and sustainable solutions. Even though six years have passed since the SDG Agenda was adopted, and four years since the targets were set, not all countries have updated their national development strategies or WSS strategies to specifically incorporate and align with the SDG 6 goals and targets, though many countries have taken steps in the right direction. Belarus, Georgia, Kyrgyz Republic and Moldova are among the most active in incorporating both rural WSS and SDG indicators into strategic planning. However, beyond the development of strategic or midterm plans, not all countries have incorporated the unique WSS challenges and needs facing rural communities.

Legal and regulatory frameworks Legislative frameworks in many EECCA countries emphasize the importance of safe and sufficient WSS services for all, but typically are written without adequate consideration for the specific challenges and access gaps faced by rural WSS. Countries lack legislation or regulations that allow for feasible and costeffective solutions. Population size and density mean that solutions that work for large municipalities can’t simply be scaled down and applied to much smaller settlements. This affects financing options, costs, affordability, management and technical capacity, among other things. In several countries, the regulatory frameworks still are based on Soviet legacy: design and construction standards (largely outdated), environmental regulations, sanitary norms, etc. They are based on an approach to WSS provision from an era when economic viability and local-level management and maintenance constraints were not key considerations. Furthermore, rural communities, which almost always lack resources and external support, are usually tasked with management of their own water systems, which, as Rural Water Supply Network (RWSN) notes, enables government officials as well as donors to “abdicate responsibility for ensuring long-term sustainable water services.”6 Local authorities in charge of water infrastructure typically do not have the financial resources and technical expertise they need to fulfil their mandate.

Financing Meeting SDG 6.1 and 6.2 will depend heavily on how financing is mobilised, targeted, prioritised, and allocated, and how cost-effectively it is used. In many countries, existing financing is far from sufficient to maintain assets and provide adequate service as systems deteriorate. As challenging as it is to finance urban WSS, where a typical urban utility operates with plenty of inefficiencies (oversized system, old and inefficient pumps, often over-staffing etc.), the rural WSS sector has serious difficulties in attracting any public or bank financing at all. In each EECCA country, there is room to increase operational efficiency and a need to improve existing or identify sound financing mechanisms. These challenges, and a lack of confidence that projects will be sustainable, make it difficult to attract investments. Financing mechanisms need to be context specific in order to promote reforms, leverage resources, create incentives for higher efficiency and improve targeting. WSS service improvements are most viable when

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9 government policy enables community share in infrastructure finance, a good base and outreach available of strong community-based organisations, and interest among domestic financial institutions. 7 At best, tariffs in EECCA countries cover O&M costs but not capital, environmental, and resource costs (in line with EU Water Framework Directive requirements). Meeting cost recovery is often considered easier than financing huge capital investments. 8 However, setting tariffs that cover full amortisation is particularly difficult when there is excess infrastructure capacity, which is expensive to operate, maintain and repair. Because public resources are often inadequate to meet costs of expanded coverage, attempts are sometimes made to attract private sector participation and investments, promote local investments through development of local credit markets, and enhance household and community resources for water and sanitation.9 Where the performance of water utilities is poor, some countries and municipalities have turned to performance-based contracting.10

Tools to support decision-making and proposal of a dashboard For a sound governance of the sector, governments need tools to help them assess the present situation and monitor trends, identify relative strengths and weaknesses, key issues and existing opportunities. Preparing and publishing annual reports on WSS sector performance would be one useful instrument. Another complementary tool to support decision-making by both government and their development partners (DP) might be a dashboard that would: •

Help governments facilitate tracking of gaps in WSS access (related to strategic planning and integration, regulation and investment etc.) and the current status of infrastructure and financing needs, or other parameters;

•

Help them see where the WSS sector of their countries and its performance stand vis-à-vis their neighbours, from whom they could learn or share their experiences with; and help decide where to allocate public funds to address high priority issues.

•

Help DPs decide where to best allocate funds, regionally and within a country. It can bring clarity to which regions and WSS issues are most in need of attention in the form of financing, technical support, institutional and regulatory reform. It would guide DPs through priority areas at the regional, country, and sector level.

•

Help DPs provide aid more cost-effectively and reduce the inefficient use of funds by identifying the sequence of intervention/assistance.

Such a dashboard might be composed of clusters such as those in the example presented in Figure 1.

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Figure 1. WSS clusters

Source: authors’ elaboration

Assuming that establishing and regularly updating such a dashboard would not consume much resources for collecting data, staff time etc., the dashboard would inform decisions of EECCA countries as well as their development partners on optimizing the allocation of resources (including public funds and technical assistance, and ODA) according to need and following sequence that takes into related constraints and requirements.

Conclusions No country has created and implemented a successful WSS model covering all or even most rural settlements. However, some countries have taken the steps generally considered critical to reaching SDG 6.1 and 6.2, including: i) developing a WSS sector strategies and mid-term plans that align with the SDGs and also address rural specificities, ii) revising legal and regulatory frameworks, and iii) earmarking budget for implementation. Without these elements in place, it will be difficult to take the necessary measures to close the access or service quality gap, or to attract ODA. Financing is critical for the development of new WSS systems and the rehabilitation of old ones, as well as for promoting cheaper, self-supply solutions. However, conditions must be right, or funds will not flow. That generally means strategies, planning, rules, and budgetary resources need to be in place. Without these, potential donors will understandably be sceptical that real progress at the country level is likely.

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References Eberhard, R (2018), “OECD – GIZ Conference: Closing the gap for water in line with SDG ambitions: the role of blended finance”, https://www.oecd.org/water/OECD-GIZ-Conference-Perspectives-Rolfe-Eberhard.pdf Mehta, M. (2003), “Meeting the Financing Challenge for Water Supply and Sanitation”, https://www.ircwash.org/sites/default/files/Mehta-2003-Meeting.pdf. OECD (2011), Meeting the Challenge of Financing Water and Sanitation: Tools and Approaches, OECD Studies on Water, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264120525-en OECD (2008), National Policy Dialogue on Financing Strategy for Rural Water Supply and Sanitation in Armenia, OECD Publishing, Paris, https://www.oecd.org/env/outreach/40637542.pdf. Naughton, M. (2017), “Community management of water points: more problem than solution? RWSN DGroup discussion synthesis”, RWSN, Skat, St Gallen, Switzerland, https://www.rural-water-supply.net/en/resources/details/786. Swiss Agency for Development and Cooperation (2014), “Water Conveyance Networks in Central Asia: An SDC Project Strengthens Inhabitants’ Self-Sufficiency”. https://www.eda.admin.ch/dam/deza/en/documents/aktivitaetenprojekte/projekte/factsheet-central-asia-rural-water-supply-and-sanitation_EN.pdf. UNICEF (2016), “Clean Water and Sanitation: Why It Matters”, https://www.un.org/sustainabledevelopment/wpcontent/uploads/2016/08/6_Why-it-Matters_Sanitation_2p.pdf. WHO (2015), “Key Facts from JMP 2015 Report”, https://www.who.int/water_sanitation_health/monitoring/jmp-2015-keyfacts/en.

Notes 1

The EECCA region consists of the following countries: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. 2

See WHO (2015).

See Swiss Agency for Development and Cooperation (2014).

See UNICEF (2016).

See OECD (2008).

See Naughton, M. (2018).

See Mehta, M. (2003).

See OECD (2008).

See Mehta, M. (2003).

See OECD (2011).

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1 Introduction

The opening chapter outlines the purpose and objective of the discussion paper. It discusses progress on, and concerns about, meeting water and sanitation related SDGs, introduces rural water supply and sanitation (WSS) as a critical area for making this progress, and explains historical trends and developments within the Eastern Europe, Caucasus and Central Asia (EECCA) region that have contributed to gaps in rural WSS.

Objectives The global community is just nine years away from 2030, the target year for the United Nations SDG goals. If current trends hold, however, the Eastern Europe, Caucasus and Central Asia (EECCA) region will likely not reach goals in the drinking water and sanitation sub-sectors (SDG 6.1 and 6.2 – see Box 1.1). Rural WSS indicators lag behind urban indicators, which is where the gap in reaching SDG 6.1 and 6.2 is especially significant. Planning, financing and implementation of water supply and sanitation systems are all more challenging outside of urban areas, where populations are smaller, poorer, and more dispersed. Concerns related to water access and hygiene have taken on even greater urgency in light of the risks created by the ongoing COVID-19 pandemic.1 The objective of this Discussion Note is to take stock of the WSS situation in the EECCA region, 2 focusing especially on rural areas and country-level access and service indicators. The note reflects on the key challenges, barriers, and opportunities for achieving SDG 6.1 and 6.2 targets. It relates these to the respective legal and regulatory frameworks, sustainability issues, domestic financing and ODA. The note aims to inform the EECCA governments and their development partners, including DFIs, OECD and other international organisations (IOs) seeking to support EECCA countries in their efforts to achieve

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 13 SDG 6.1 and 6.2 by highlighting areas where such support would add most value and help address critical WSS issues in EECCA. The issues facing the WSS subsectors are interrelated and complex, and in some cases beyond the scope of this paper. The following chapters outline issues that have been explored in previous analytical work with the aim of informing discussion on how best to proceed and develop respective policy action.

Box 1.1. Sustainable Development Goal 6, Targets 6.1 and 6.2. Goal 6: Ensure availability and sustainable management of water and sanitation for all Target 6.1: By 2030, achieve universal and equitable access to safe and affordable drinking water for all. Indicator 6.1.1 Proportion of population using safely managed drinking water services. Definition of safely managed drinking water service: Proportion of population that is using an improved drinking water source, that is located on the premises, available when needed, and free of faecal and priority chemical contamination. Target 6.2: By 2030, achieve access to adequate and equitable sanitation and hygiene for all and end open defecation, paying special attention to the needs of women and girls and those in vulnerable situations. Indicator 6.2.1: Proportion of population using (a) safely managed sanitation services and (b) a hand-washing facility with soap and water Definition of safely managed sanitation: Use of improved facilities that are not shared with other households and where excreta are safely disposed of in situ or transported and treated offsite. Source: UNWATER 2021: https://www.sdg6monitoring.org/indicator-621/

Context The OECD GREEN Action Task Force (former EAP Task Force) has been working on WSS issues in EECCA since its water programme was established more than two decades ago. Most recently, in November 2020, the OECD delivered a workshop, with the financial support of the government of Norway, on the integration and implementation of water-related SDGs in the EECCA region. The workshop concluded that the global community is currently behind schedule to achieve the targets envisaged by SDG 6: “Ensure availability and sustainable management of water and sanitation for all.” The sustainability of business models used to operate, maintain and finance WSS systems, and the viability and potential bankability of WSS infrastructure projects in EECCA are of particular concern. Other related themes that arose were: i) the allocation of public funds to the WSS sector; and (ii) the need to prioritise significant public expenditures for WSS in terms of urban versus rural, as well as water supply versus sanitation assets; and iii) the need for sound and feasible strategic and mid-term plans to guide this process. The workshop also discussed the impact of the COVID-19 pandemic on the pressures and prioritisation of public expenditure in terms of allocation of funds for high priority interventions. 3 In addition, links were made between access to safe and affordable WSS for all and improving drinking water quality and hygiene

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14  as pre-requisites for reducing the risk of COVID-19 (and of outbreak of any other similar infection) and water-borne diseases, and ultimately for improving the public health.

Why addressing WSS matters Expanding access to good and affordable water and sanitation services are a key element of the Sustainable Development Goals, along with food and energy security, good health and gender equality. 4 They are strongly correlated with other development indicators, and are a basic necessary for empowering healthy and productive communities. At a global level, progress is being made toward these goals. Global coverage of “safely managed drinking water” increased from 61% to 71% and for “safely managed sanitation” from 28% to 45% between 2000 and 2017.5 However, under the business-as-usual approach, many countries in the EECCA region and beyond are unlikely to meet the SDG 6.1 and 6.2 by 2030. To spur progress, UNWATER has developed a Global Acceleration Framework, focusing on five areas it considers critical to triggering acceleration: Data and Information, Capacity Development, Financing, Innovation, and Governance. 6 The SDG global indicators are designed for use as targets by national policies, to monitor and report on progress. They will be most useful when they are part of national policy, sectoral strategies and plans and implemented with support from national budgets mobilising where feasible also private sector contributions (financial or in-kind) and ODA, where appropriate and feasible. For low-income, and low middle-income countries, ODA must be well prioritised and strategically targeted.

Legacy issues and developments in Soviet successor states Despite the apparently high access across EECCA countries (at least in urban areas) reported by Joint Monitoring Programme (JMP) for Water Supply and Sanitation, one of the most persistent and challenging issues in the region remains low access to reliable supply of drinking quality water and proper sanitation in rural areas. Individual programs and projects have had some success, but no country has solved the resource quality and management issues (including water ecosystems degradation, floods, and water scarcity) or addressed the water-food-energy-ecosystems nexus.7 Although there is significant variation across the EECCA region, administratively, financially, and resourcewise in how drinking water supply and sanitation services are provided, many of these countries face similar challenges in providing adequate and affordable water and sanitation services for all. Most water supply systems across the region were built in the 1950s-1980s during the Soviet era. Over the first decade(s) since independence, the quality of WSS systems and services had deteriorated in many former Soviet Republics. When these systems became defunct, governments of newly independent states did not step in to take control of water provision 8 and rural settlements and small towns were left to manage their own supply without the necessary management, technical and fiscal capacity. These systems also struggled to get users to pay for WSS services that were previously (almost) free of charge. As a result, many rural WSS systems either were shut down or not properly maintained or rehabilitated. By 2000, much of the WSS infrastructure was not operational, especially in rural areas. Declines in service quality can be attributed to a variety of factors, including decrease of the real income of populations and the public budget revenues due to the general economic recession in 1990-1999, reduction of the WSS funding, lack of regular repair and preventative maintenance, and lack of qualified staff or professional skills of the staff.9 A large financing gap has appeared and a huge maintenance backlog has been accumulated. The OECD estimated in 2005 that only about half of the financing necessary to operate, maintain and invest in the

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 15 WSS sector was available across all EECCA countries. 10 In 2008, Armenia’s the financing gap for rural WSS alone was estimated at 8.6 AMD (~27 million USD) and 11.7 billion AMD (~38 million USD). 11 A study of 12 water utilities (apacanals) in Moldova (most of which are public) found annual sector losses of around 100 million MDL (~6.7 million USD).12 In Kyrgyzstan, the OECD estimated in the early 2010s that at least 20 billion KGS (~440 million USD) was required to ensure overall access to improved systems of water supply, sewerage and sanitation. 13 Although these gaps have been known for years, filling them remains as difficult as ever.

References Global Water Partnership (2009), “Regional Review: Water Supply and Sanitation in the Countries of Central Asia and Southern Caucasus”, https://www.gwp.org/globalassets/global/toolbox/case-studies/asia-and-caucasus/central-asia-and-caucasus.regional-review-of-water-supply-and-sanitation-from-iwrm-perspective-395.pdf. Naughton, M. (2017), “Community management of water points: more problem than solution? RWSN Dgroups discussion synthesis”, RWSN, Skat, St Gallen, Switzerland, https://www.rural-water-supply.net/en/resources/details/786. OECD (2018), Guidelines for Introducing Sustainable Business Models in Rural Water Supply and Sanitation to Achieve Greater Levels of Water Security, OECD Publishing, Paris. OECD (2015), Contribution to the National Policy Dialogue on Water Policy in Moldova Improving Domestic Financial Support Mechanisms in the Water and Sanitation Sector in Moldova, Alpha Plus Consulting, OECD Publishing, Paris, https://www.oecd.org/env/outreach/MD_Improving%20DFSMs%20for%20WSS.pdf. OECD (2013), Kyrgyz Republic National Policy Dialogue on Integrated Water Resources Management Process and Results for the Period of 2008-2013, OECD Publishing, Paris, https://www.oecd.org/env/outreach/KR_NPD%20Overview.pdf. OECD (2008), National Policy Dialogue on Financing Strategy for Rural Water Supply and Sanitation in Armenia, OECD Publishing, Paris, https://www.oecd.org/env/outreach/40637542.pdf. OECD (2005), Financing Water Supply and Sanitation in Eastern Europe, Caucasus and Central Asia, OECD Publishing, Paris, https://www.oecd.org/env/outreach/36388760.pdf. UNICEF (2016), “Clean Water and Sanitation: Why It Matters”, https://www.un.org/sustainabledevelopment/wpcontent/uploads/2016/08/6_Why-it-Matters_Sanitation_2p.pdf. United Nations (2019), “Ensure availability and sustainable management of water and sanitation for all.” https://unstats.un.org/sdgs/report/2019/goal-06/. UNWATER (2020), “Global Acceleration Framework”.

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Notes 1

The WHO declared COVID-19 a global pandemic on March 11, 2020. A year later, over 2.5 million people had succumbed worldwide. 2

The EECCA region consists of the following countries: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. 3

In 2020 the global economy contracted by an estimated 4.3% (World Bank. 2021. Global Economic Prospects) and Europe and Central Asia emerging market and developing countries contracted by 2.9%. 4

See UNICEF (2016).

See United Nations (2019).

See UNWATER (2020).

See Global Water Partnership (2009).

See OECD (2018).

See Global Water Partnership (2009).

See OECD (2005).

See OECD (2008).

See OECD (2015).

See OECD (2013).

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2 Barriers

To set the stage for the discussion, this chapter summarizes the main barriers to the development of the water and sanitation subsectors in EECCA countries, and considers their causes and implications.

Overview Within the WSS sector, rural WSS provision is an especially difficult puzzle to solve. Rural water and sanitation systems, where they exist, often have fundamentally different needs and capacity from urban systems. This is true for their infrastructure, geography-topography, costs, and customer base. Existing regulations intended for urban WSS systems and infrastructure can get in the way of rural WSS development. Other barriers, summarized below, include low political priority and a lack of a coherent strategy, gaps in or inconsistent regulation, poor existing infrastructure, unrealistic construction and consumption norms, overcapacity, maintenance and operational inefficiencies, high costs and low affordability, difficulty accessing capital and financing options, and regional disparities.

Low affordability and willingness to charge Some studies have observed that willingness to pay (WTP) (as a percentage of household budget) is higher in rural areas, reflecting the value that rural citizens assign to WSS services and the marginally high positive impact that even a basic improvement in service can bring. For example, willingness to pay for improved services versus in Armenia is significantly higher outside Yerevan, at 41.6%, vs. 27.1% in the capital. 1 WTP for both water and sanitation are high; sanitation is highest. 2 In Georgia, rural households have a higher WTP than their urban counterparts, who receive high quality of service and pay higher tariffs. Finally,

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18  a study in Uzbekistan found that WTP for high quality drinking water and sanitation service was highest among unconnected households in rural areas at UZS 14 000 (6.09 USD) per month, and lowest in Tashkent, at UZS 3 500 (USD 1.52) per month.3 Despite trends in high WTP among rural households, they tend to be poorer than urban households and ultimately less able to pay for WSS services. This, in turn, limits the amount that WSS system operators (utilities or community-based operations) can charge and increases the financing required to subsidise operations or, preferably, reach cost recovery. Governments often have low willingness to charge, a common aversion, as raising prices and tariffs on any essential goods and services are politically unpopular and no ruling party or coalition wants to be “the one” to increase tariffs.

Weak sector strategy or controversial regulation The OECD found in 2011 that many municipalities and water utilities in EECCA countries did very little or poor quality strategic planning within the water sector. If the policy, legal and regulatory frameworks does not enable discussion of, or clearly delegate responsibilities for, WSS, especially rural WSS, and does not set clear and feasible sector development targets, financing and political action does not follow. For example, Kyrgyz Republic had no law on WSS for many years, inhibiting sector development. 4 There are also legal regulatory acts issued by the national and/or province level governments contradicting to each other, e.g. some provisions of the Water Law and the Water Code in Kyrgyzstan. The World Bank called for Armenia to better define the responsibilities of national and municipal actors in its Water Code. Management and regulatory difficulties at the village level have in part been attributed to lack of clarity on institutional relationships.5

Weak governance The OECD Principles on Water Governance define water governance as “the range of political, institutional and administrative rules, practices and processes (formal and informal) through which decisions are taken and implemented, stakeholders can articulate their interests and have their concerns considered, and decision-makers are held accountable for water management.”6 However, the three dimensions of water governance outlined in the effectiveness, efficiency, and trust and engagement, are in generally short supply in EECCA countries. Sector governance is critical to developing and implementing policies and plans, and that includes turning the SDG 6 commitments into actions. For example, when rural WSS is not properly integrated into legal and regulatory documents, it prevents sector stakeholders from delineating or expressing their responsibilities and powers, and prevents them from accessing essential resources or financing. If governance were strong, then the wide range of challenges described in this section and hindering WSS access would be fewer and they would be smaller. In the WSS sector responsibilities and accountability are often unclear. In Kyrgyzstan, the department responsible for developing rural water supply and sanitation was severely underfunded for many years. In Ukraine, roles and responsibilities were scattered among different government entities lacking common goals, a situation found in other countries as well.7

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 19 Higher unit costs for rural service provision High operating costs are a barrier to sustainable financing and cost recovery. These costs include high leakage and other operational inefficiencies, electricity tariffs and pumping, treatment, repairs of deteriorated pipelines, and poor management. 8 Outdated consumption and construction norms that force over installation of capacity compared to the present and future demand, especially in rural contexts, further push up costs. Only a few EECCA countries have adopted new design and construction norms that are more appropriate for small water or sewerage systems in rural areas. This is largely because many rural systems in the EECCA region were originally funded out of collective farm budgets and funds without either the involvement or contributions from other water users that rely on them. The collective farm system collapsed with the fall of the Soviet Union and has left rural communities with a burden that continues 30 years later. Belarus, where cooperative farms still operative, is an exception to the rule. However, this does not mean overcapacity is not a problem, as both water usage and population have declined and there is overcapacity at the national level even though some villages have no water systems at all.9

Outdated consumption and construction norms and their inappropriate application Part of the Soviet legacy in EECCA countries is the continued use of norms determining the installed capacity of water intakes, pumping and treatment stations, and the size of piping required for systems. Originally intended to serve growing cities and towns, and meeting their peak demand, the old Soviet norms can make the design and construction of small rural systems prohibitively expensive. Inefficient systems take up more capital and recurrent financing. One effect is to limit the total number of rural systems that can be financed, given the limited funding packages that can be counted on. The use of outdated, inappropriate consumption norms and design standards end up locking in inefficient use of resources and finances for the life of the asset.

Overcapacity Because of these norms, systems built during Soviet times to handle much larger capacity than current demand also mean that maintenance, rehabilitation and capital costs are excessive. In the rural Kopyl rayon of Belarus, capacity utilisation of boreholes built to abstract water for drinking and other domestic needs is as low as 22%. In urban WSS in Moldova, in small towns and medium size cities, for example, the capacity utilisation rates of piped/centralise water supply systems are often at 25% maximum, in the context of shrinking population and diminishing demand for water. Key factors contributing to these negative development trends include over-sized systems (further contributing to operational inefficiency) as demand for water supply fell. This often means that tariffs are unable to cover the costs of inefficient operations and capital costs of highly over-built systems.

Low political priority When WSS access, especially in rural areas, is not a national strategic priority, it becomes difficult to mobilise political, financing or donor support to these initiatives. By contrast, in cases where WSS access is a political or strategic priority, efforts are made to embed it into water policy and regulation, and design strategies to ensure or identity funding. In the absence of a national WSS strategy or plan, whether or not a region or municipality or village receives project funding is more likely to be linked to the motivation or

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20  politically connections of local leaders. Two questions thus arise: First, when and why has WSS access become a political priority in some countries? Second, what actions can development partners take, beyond aligning project support to SDGs 6.1 and 6.2, to encourage prioritisation?

Decentralisation and unfunded mandates Rural service provision and system oversight of operators in EECCA is normally tasked to local governments, who often assign it to community-based operators (CBOs) in rural areas. But small operators do not benefit from the economies of scale that their urban counterparts do, and face high upfront capital costs compared to resources they have available. The Rural Water Supply Network (RWSN) calls asking community organisations to manage water systems “an abdication of responsibility” by national governments and donors.10 From a management perspective CBOs tend to be weak and lack capacity, yet are not given the management, technical or financial support to go with the mandate. Many of them simply “muddle through” as best they can. Generally, the only real alternative to under-resourced community management is no management at all, rather than better management.

Difficult access to capital Individual rural WSS projects are typically too small and unattractive for commercial and development financial institutions (DFIs), as well as difficult for “crowd funding” by local communities. Their small size, and high transaction and project preparation costs makes it difficult to generate sufficient financial returns on investment, while pooling such projects is associated with additional costs and risks. Some models of regional rural water management, such as the Veolia Djur using a Public-Private Partnership (PPP) model in Armenia (see Box 2.1) appear to be successful, but have not been replicated elsewhere.

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 21

Box 2.1. Armenia Veolia Djur case Where private companies have long-term concession agreements (e.g. lease or affermage contracts), they either finance the investment themselves or issue bonds. Armenia’s engagement with the private sector to provide WSS services has been lauded as a PPP case “that works”. There was high public support for private management through the country’s first “phase” from 2000 to 2016, though several PPPs failed to improve significantly the financial performance of water utilities outside of Yerevan. 11 In 2016, the government initiated the “second phase” by signing a lease with a single private operator (the private company Veolia, through its subsidiary Veolia Djur) for 15 years, and aims to remedy previous shortcomings by focusing on service-provision to 579 unconnected rural communities. The contract, worth €800 million, will provide drinking and wastewater services in rural Armenia. 12 The company provides water supply and drainage systems to 311 rural communities. 13 It also provides wholesale water supply services to 63 settlements beyond its service area, where it has assumed the responsibility for exploitation and maintenance of state-owned water supply and drainage systems attached to the State Water Management Company. Under this arrangement, the Water Committee is responsible for renovations of the major property repairs, network expansions and the renewal of investments; the Government is responsible for capital expenditures; while the construction of the new water supply and sanitation systems is the expense of Veolia Djur. Source: 1. Veolia (2016), Veolia wins affermage contract for all water and wastewater services in Armenia. 2. Muzenda, D. and Marin, P. (2018), Water PPPs that work: The case of Armenia. https://blogs.worldbank.org/ppps/water-ppps-work-casearmenia

Deteriorating infrastructure Most EECCA countries have old WSS systems, built to provide greater capacity than presently needed, with deteriorating water pipelines and high costs of rehabilitation. Breakdowns are frequent, service is irregular, and leakages can be high, as are technical and commercial water losses. Many EECCA countries struggle to afford maintaining and rehabilitating existing infrastructure, let alone expanding it to rural areas which still lack access. In Armenia, 60% of water supply networks and sewage collectors were built more than 35 years ago.14 In Kyrgyzstan, over 61% of the existing 1415 rural water systems were constructed 25 to 65 years ago and are rapidly deteriorating. 15 Sometimes system rehabilitation can even exacerbate existing problems. When transmission pipes are replaced or water is drawn from new sources, the resulting higher volumes place additional pressure on worn-out internal networks, causing them to burst.

Inefficiencies and proper operation and maintenance challenges Inefficiencies in management and operation, or the lack of capacity to proper operate and maintain inhibits the sustainability of WSS systems and increases their costs. This includes low investment in, and technical experience for, providing system maintenance, low collection rates etc. Low management capacity exists because of low paying positions make it difficult attracting good long-term management and qualified staff. Because small rural systems have higher unit costs to begin with, and a poorer customer base, more

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22  expensive unit operating costs resulting from inefficiencies, and poor management can make these systems expensive to maintain, lead to high failure rates, and makes system sustainability less likely.

Minimal evidence that solutions can be scaled up or replicated Successful solutions for rural WSS in the EECCA region do exist. They include the case of Veolia Djur, the Swiss project “Rural Water Supply and Sanitation” in Uzbekistan and Tajikistan, and the Central Asia Alliance for Water (CAAW), an NGO based in Osh, Kyrgyz Republic. For two decades it has operated a successful scheme with dozens of participating communities, but despite its success, the model has not been replicated throughout the country. *** The complex interplay of institutional, regulatory, political, technical, capacity and financial challenges can work against the goal of access to good quality, reliable and affordable water, and proper sanitation on a sustainable basis. Systemic challenges will never disappear completely, but they can be addressed, or at least managed. By thoughtfully identifying and prioritising barriers, and understanding how they relate, they can be more precisely and efficiently addressed in order to pave the way for SDG 6 progress.

References Muzenda, D. and Marin, P. (2018), “Water PPPs that work: The case of Armenia”, https://blogs.worldbank.org/ppps/water-pppswork-case-armenia. Naughton, M. (2017), “Community management of water points: more problem than solution? RWSN Dgroups discussion synthesis”, RWSN, Skat, St Gallen, Switzerland, https://www.rural-water-supply.net/en/resources/details/786. OECD (2020), Towards Water Security in Belarus: A Synthesis Report, OECD Publishing, Paris, https://doi.org/10.1787/488183c4-en. OECD (2018), Guidelines for Introducing Sustainable Business Models in Rural Water Supply and Sanitation to Achieve Greater Levels of Water Security (unpublished) OECD (2017), OECD Studies on Water Improving Domestic Financial Support Mechanisms in Moldova's Water and Sanitation Sector, OECD Publishing, Paris, https://books.google.ca/books?id=l8E6DwAAQBAJ&dq=social+support+subsidy+wss+eecca&source=gbs_navlinks_s OECD (2016), Updating Ukraine’s water governance system: From infrastructure to governance-oriented institutions, OECD Publishing, Paris, Water-Practice-44-Updating-water-governance-system-Ukraine.pdf (oecd.org) OECD (2015), OECD Principles on Water Governance, OECD Publishing, Paris. OECD (2009), Strategic Financial Planning for Water Supply and Sanitation, OECD Publishing, Paris, https://www.oecd.org/env/resources/43949580.pdf UNHCR (n.d.), “Special Rapporteur on Human Rights to Safe Drinking Water and Sanitation”. UNICEF (2021), “Kyrgyzstan: Water, sanitation and hygiene,” https://www.unicef.org/kyrgyzstan/water-sanitation-hygiene. Veolia (2016), “Veolia wins affermage contract for all water and wastewater services in Armenia”, https://www.veolia.com/en/veolia-wins-affermage-contract-for-all-water-and-wastewater-services-in-armenia

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 23 World Bank (2011), “Republic of Armenia Water Sector Note”, https://openknowledge.worldbank.org/bitstream/handle/10986/2816/613170White0Co007110watersector0eng.pdf?sequence =1&isAllowed=y World Bank (2015a), “Republic of Armenia Financial Strengthening of Operating Water Concessions Armenia Water Sector Tariff Study”, https://ppiaf.org/documents/3698/download. World Bank (2015b), “The Case of Uzbekistan Social Impact Analysis of Water Supply and Sanitation Services in Central Asia”, https://socialvalueuk.org/wp-content/uploads/2017/03/97832-REVISED-Box394849B-ENGLISH-report-en-ebook.pdf

Notes 1

See World Bank (2015a).

See World Bank (2015b).

See UNICEF (2021).

See World Bank (2011).

See OECD (2015).

See OECD (2016).

See OECD (2009).

See OECD (2020).

See Naughton, M. (2017).

See Muzenda, D. and Marin, P. (2018).

See Veolia (2016).

See UNHCR (n.d.).

See OECD (2010).

See OECD (2018).

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24 

3 Data on WSS access

This chapter discusses access to WSS throughout the EECCA region, the urban-rural divide and problems with quality and availability of data.

Introduction Globally, access to essential water and sanitation services remains low in many developing countries, though much progress has been made. Lack of access to safe water results in serious medical costs and major economic losses 1, and WSS-related diseases are a primary cause of death among children under five.2 It is estimated that over 40% of the global population is impacted by water scarcity; a number that is expected to rise as the climate crisis and competing water uses increase. Disparities are highest across the rural-urban divide, where rural residents face higher barriers – and costs – to accessing water and sanitation facilities. In these areas, improvements in even basic levels of service have the potential to provide immense livelihood improvements. The WHO estimated in 2015 that globally 8 out of 10 people without improved drinking water sources, and 7 out of 10 people without improved sanitation facilities, live in rural areas. 3 In EECCA countries access to improved water sources is relatively high compared to other regions, with national access rates of around 90% (high of over 99% in Belarus and low of 65% in Moldova). Rural access is consistently lower than urban access, with a gap ranging from 0.4 percentage points in Belarus to 19.9 percentage points in Azerbaijan. These figures, which are reported by national statistical offices or development partners, are generally considered to be higher than actual conditions.

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 25 There are wide coverage disparities within countries, as well. For example, in the Kyrgyz Republic, access to clean water ranges from just 57.8% in Talas oblast to 86.1% in Chui oblast.

Monitoring access and data quality Accurately determining and monitoring access is essential for SDG 6.1 and 6.2 achievement. To track progress on SDG 6.1 and 6.2, the WHO/UNICEF Joint Monitoring Programme (JMP) for Water Supply, Sanitation and Hygiene compiles internationally comparable estimates of national, regional and global progress on drinking water sanitation and hygiene. Data reported in JMP is provided to WHO/UNICEF by national statistics offices or other national bodies conducting surveys and collecting data. The purpose of the JMP database is to track progress towards WSS indicators and allow for comparisons across countries, and between rural and urban areas levels of access. In many countries, the numbers reported to JMP appear to be overly optimistic, given the widespread problems with reliability and quality. The access figures don’t necessarily reflect water and sanitation quality, and may simply indicate that the infrastructure is in place, not whether it is still functioning, or people are able to draw water, for example, when needed. Access data (SDG 6.1 and 6.2) is often incomplete or may conceal as much as it reveals. The headline numbers for access do not always reveal the full picture. Access rates reported to JMP sometimes do not match access rates reported by countries to development partners or in different publications. Such inconsistencies in reported figures observed even in countries with generally very good statistics might be assigned partly to differences in terms and definitions used by JMP and other actors. But in some countries there might be also incentives to appear better than their neighbours. At another level, even if consistent with other reporting, they don’t speak to issues of reliability, quality, consistency in service, or the state of the utility. They may only indicate whether there is a pipe going to a household, not whether household has regular, continuous, good quality drinking water supply, or whether sanitation meets normative standards and is affordable. In EECCA, sometimes rural households have to rely on open canals, shallow wells, or mountain streams, even when water systems are in place, evidence suggests that they are not always meeting people’s needs. Another issue with access data is that it is not updated regularly (for which reason SDG 6 is classified as a Tier 2 indicator). A decade may pass between reporting. In Ukraine, for instance, the most recent data available is from 2012, making it harder to assess and compare progress. The access values may remain steady regardless of whether a country is increasing access or, conversely, deteriorating infrastructure is leaving people without services. For this reason, trend analysis for many countries cannot be relied upon the access rate remains steady. Reliable, timely and internationally comparable datasets for urban and rural WSS are necessary to provide insights into present conditions and trends. These datasets can only be produced on the basis of “coherent and harmonised methodology that delineates cities, urban and rural areas in a consistent manner”.4 Until a recent publication by six organisations, 5 including OECD, no global methodology or international standard had been proposed to delineate these areas. 6 Individual countries define urban and rural areas according to their own criteria, making cross-country comparisons difficult. In addition, defining “urban” and “rural” might be based on total population (percent of households or individuals with access) or locality/city (percent of villages with access). Though, of course, ultimately, definitions of urban and rural should not

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26  matter because the objective of the SDGs is to have high WSS access across the board, “no matter how the pie is sliced.” Belarus plans to respond to the ongoing issue of data quality and timeliness by including relevant questions in its regular household surveys. A UNECE survey of urban access to centralised water supply found access rates of 98.7% versus 83.5% for rural “agro-towns.” Urban sanitation access was at 89.8%, versus 29.7% for “agro-towns”.7 Meanwhile, JMP shows different figures: 99.8% urban and 99.5% for rural. The Belarus National Development Programme 2016-2020 found serious problems with the quality of water used for drinking, especially in rural areas where many households use water from shallow wells. Measures implemented under the State Programme "Comfortable housing and a favourable environment" for 2016-2020, increased the percentage of the supply of drinking water to consumers by 7.2% nationwide, ensuring adequate quality of drinking water for about 400 000 people. However, by the end of 2020, the availability of high-quality drinking water to consumers was 94.7% (5 percentage points below the JMP 2017 numbers!)8. In Kazakhstan, in many settlements water supply is irregular or on a scheduled basis, and drinking water quality is sometimes noncompliant with regulatory requirements. 9 It was estimated in 2016 that some 75% of assets needed replacement. Yet, reports that 86% of the population has access to drinking water and 81% of the population has access to sewerage services (2016) do not reveal these gaps. Despite Moldova’s seemingly good access rates to water (98.5% in urban and 85% in rural settlements), the World Bank estimates that almost one million Moldovans (close to 40% the population) rely on polluted shallow wells for their drinking water. Furthermore, 80% of the wells are not compliant with drinking water norms, e.g., because they contain nitrates and have microbiological contamination. 10 Illustrating the gap between access and availability, in Tajikistan, the World Bank reports that while 98% of households in Dushanbe have access to improved water on premises, only 61% report that water from this source is available when needed. 11 According to Tajikobdehot, only about 35% of rural areas are served by piped potable water. A survey of the state utility enterprise SUE KMK (2011) found coverage of potable water systems for 43.4% of villages, but also that 16% of these systems were out of order. There are inconsistencies with Uzbekistan JMP data, which shows a national access level of 25.7% for sanitation, with urban and rural averages of 99.8% and 99.7% respectively. This pattern (where the national access level does not add up in context of the reported urban/rural breakdowns) is present across multiple survey years. The cost of delivering water is very high (high commercial losses, technical losses) and this has implications for fiscal sustainability of the system, something which does not show up in access numbers. The headline number may suggest that access to water or sanitation is reasonably high, but supply may be irregular, the quality poor, and different criteria may be used to define what access is in different countries, and may not answer core questions in line with UN criteria. (E.g., for water: How far away is it? Is it affordable? What is meant by “safe”? How clean is the water? What pollutants are present? Does it need to be boiled before consumption, imposing additional costs? For sanitation, is it on site or central (sewerage)? Is wastewater treated? Finally, where do the numbers come from?) One policy implication of artificially high reported access rates is that it may reduce attention and funding (domestic and ODA) devoted to solutions.

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 27 Acknowledging that national access data cannot reveal the full picture, we next turn to a discussion of access and affordability to provide a more complete perspective on challenges facing the WSS sectors in EECCA.

References Asian Development Bank (2015), “Country Partnership Strategy: Kazakhstan 2012-2016: Sector Assessment (Summary): Multisector (Urban Transport, Water Supply And Sanitation, And Other Municipal Services)”, https://www.adb.org/sites/default/files/linked-documents/cps-kaz-2012-2016-ssa-03.pdf. Belvodokanal (2021), Belarus, Personal communication, March 19, 2021. European Union/FAO/UN-Habitat/OECD/The World Bank (2021), “Applying the Degree of Urbanisation: A Methodological Manual to Define Cities, Towns and Rural Areas for International Comparisons”, https://ec.europa.eu/eurostat/documents/3859598/12519999/KS-02-20-499-EN-N.pdf/0d412b58-046f-750b-0f487134f1a3a4c2?t=1615477801160. Swiss Agency for Development and Cooperation (2014), “Water Conveyance Networks in Central Asia: An SDC Project Strengthens Inhabitants’ Self-Sufficiency”. https://www.eda.admin.ch/dam/deza/en/documents/aktivitaetenprojekte/projekte/factsheet-central-asia-rural-water-supply-and-sanitation_EN.pdf. UNECE (2021), “Self-Assessment of Equitable Access to Water and Sanitation in the Republic of Belarus.” UNICEF (2016), “Clean Water and Sanitation: Why It Matters.” WHO (2015), “Key Facts from JMP 2015 Report”, https://www.who.int/water_sanitation_health/monitoring/jmp-2015-key-facts/en. World Bank (2020), “Moldova: Water Security Diagnostic and Future Outlook.” World Bank (2019), Tajikistan Project Appraisal Document on a Proposed Grant of SDR 21.70 Million to the Republic of Tajikstan.. Report No: PAD3227

Notes 1

See Swiss Agency for Development and Cooperation (2014).

See UNICEF (2016).

See WHO (2015).

See European Union/FAO/UN-Habitat/OECD/The World Bank (2021).

The European Commission, the Food and Agriculture Organization of the United Nations (FAO), the United Nations Human Settlements Programme (UN-Habitat), the International Labour Organization (ILO), the Organisation for Economic Co-operation and Development (OECD) and the World Bank.

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28  6

See European Union/FAO/UN-Habitat/OECD/The World Bank (2021).

See UNECE (2021).

See Belvodokanal (2021).

See Asian Development Bank (2015).

See World Bank (2020).

See World Bank (2019).

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 29

4 Affordability and costs

This chapter discusses the factors contributing to WSS affordability, and the financial and non-financial costs borne by unconnected households, particularly in rural areas.

Access to safe and reliable WSS is only one side of the coin. For access to be meaningful, the service (when provided by a third party) or resource (when provided by the household itself) must be affordable. Affordability is one of the central goals of SDG 6 and it needs to be taken into account as EECCA countries reconsider their approaches to expanding WSS services. In the EECCA region unit costs (per m3 or per person served) tend to be high compared to the level of service received by end-users. Affordability is an issue in several EECCA countries, especially topical in rural areas where household income is typically lower. Ability-to-pay (ATP) and willingness-to pay (WTP) assessment following well-established methodologies developed by the EBRD and OECD help prevent from over-estimating this issue it by populist politicians. A threshold of between 3% and 5% (a mean of 4%) of disposable household income is typically used to define affordability, 1 but this varies by country and community context. 2 For example, water rich countries like Kyrgyzstan and Tajikistan may have a threshold of 2.5-3%. Countries that experience permanent or seasonal water stress and who therefore assign a higher value to scarce water, like Moldova, might have a threshold of 5%. For this reason, data on household WTP is given significant weight. Low-income customers can be protected, but capacity of existing, not always well-targeted, social support systems in many EECCA countries is very limited.3 Not having access to water imposes a cost on individuals and communities. There are financial and nonfinancial costs associated with the delivery of WSS services. Financial costs. Rural communities who do not have access to improved WSS services face different cost structures from their urban counterparts. Tariffs account for most urban water RURAL WATER SUPPLY AND SANITATION: REACHING SDG 6 IN EASTERN EUROPE, CAUCASUS AND CENTRAL ASIA © OECD 2022

30  expenses. In rural areas, costs break down differently and households may rely on multiple sources for different purposes - tariffs are paid to the provider, bills are paid for water procurement from other sources (e.g. bottled water, water tanker trucks), and finally, costs for maintenance of own wells, often used because of low reliability of water supply. These sources are divided by use, because of the high level of unreliability and high cost of quality (drinking water may be purchased separately from piped or well water). Non-financial costs. The cost of not having access to clean, safe water can manifest themselves in poor health and reduced educational achievement, which in turn depress current and future earnings. Inhabitants of settlements without drinking water supply suffer disproportionately from diseases caused by the consumption of contaminated water, generating serious medical costs and major economic losses.4 Addressing these problems then imposes further costs, for example, through boiling and decontaminating water. There may also be issues of safety, for example, women needing to leave the house to collect water. In Uzbekistan, a survey found that one fifth of women without household sanitation facilities felt unsafe using the sanitation facilities available to them.5 Typically, households who rely on self-supply also spend money to maintain individual water supply sources (borehole or shallow well) and bear the costs of repairs, water treatment, and water transportation. These households may sometimes buy potable water, but this expenditure is relatively low compared to other water use. Overall, households that pay for, or bear the costs of, non-piped water services tend to incur higher per unit costs than households with piped connections, including higher financial costs and non-financial costs in terms of time or health. 6 In the EECCA region, tariffs and cost of service vary across countries, their provinces and municipalities. Cross-subsidies from businesses and institutions to household are commonly used to suppress household tariffs. State support measures targeted at vulnerable households also help soften the affordability constraints. However, affordability issues still exist - primarily in very poor or high cost of service areas, e.g., some communities can rely on gravity fed water while others must cover the cost of pumping water. Unique topographical challenges, such as villages located in highlands (found in eastern Kazakhstan, Kyrgyzstan or Tajikistan) or hilly areas along water courses (as is common in Moldova) with large distances between private homes, increase the costs and complexity of system design and operations. Infrastructure needs, including pumping, and therefore financing arrangements, depend on resource endowments, fresh water sources, energy options to provide the service, geographic factors, community size, etc. Financial sustainability is also part of the story (see Financing chapter): an affordable mechanism that relies too heavily on external support may not be around by 2030. Additionally, there must be a recognition that the “best” water system is not always possible and cannot always meet costly construction norms. Therefore, there has to be a willingness to find, implement, and promote lower cost solutions for reliable supply of safe water. Also, there must be willingness to pay, willingness to charge, and tariffs that cover costs. This is one of the most difficult conundrums to address in the water sector. When aiming for universal access (‘’no one left behind”), countries need to think about the affordability of WSS systems or self-supply that they incorporate into their policies and legislation. Otherwise, implementation will be too costly to cover all those who need safe water and proper sanitation.

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 31

References Mitlin, D., et al. (2019), “Unaffordable and Undrinkable: Rethinking Urban Water Access in the Global South”, https://www.wri.org/wri-citiesforall/publication/unaffordable-and-undrinkable-rethinking-urban-water-access-global-south. OECD (2020), The Social Consequences of Pricing Water, OECD Publishing, Paris, https://www.oecdilibrary.org/sites/e1b8a4b6-en/index.html?itemId=/content/component/e1b8a4b6-en#endnotea2z4 OECD (2008), National Policy Dialogue on Financing Strategy for Rural Water Supply and Sanitation in Armenia, OECD Publishing, Paris. OECD (2003), Environmental Financing Strategy for the Municipal Water and Wastewater Sectors in the Ukraine Background Analysis, OECD Publishing, Paris, http://www.oecd.org/environment/outreach/34055317.pdf. Swiss Agency for Development and Cooperation (2014), “Water Conveyance Networks in Central Asia: An SDC Project Strengthens Inhabitants’ Self-Sufficiency”. https://www.eda.admin.ch/dam/deza/en/documents/aktivitaetenprojekte/projekte/factsheet-central-asia-rural-water-supply-and-sanitation_EN.pdf. World Bank (2015), “The Case of Uzbekistan Social Impact Analysis of Water Supply and Sanitation Services in Central Asia”, https://socialvalueuk.org/wp-content/uploads/2017/03/97832-REVISED-Box394849B-ENGLISH-report-en-ebook.pdf.

Notes 1

While 3% is used as a proxy for affordability limit, such a threshold is highly debatable. The level does not build on any robust assessment. The very concept of a threshold is being challenged. See work by Hutton, Wittington. See also OECD Working Paper (forthcoming 2020) The Social Consequences of Pricing Water, for a discussion. https://www.oecd-ilibrary.org/sites/e1b8a4b6en/index.html?itemId=/content/component/e1b8a4b6-en#endnotea2z4 2

See OECD (2003).

See OECD (2008).

See Swiss Agency for Development and Cooperation (2014).

See World Bank (2015).

See Mitlin, D., et al. (2019).

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32 

5 Strategic and mid-term planning for WSS

This chapter discusses the importance of good strategic planning and reviews progress within the region on updating and expanding WSS-specific strategies, programmes and plans.

As UN member states, all EECCA countries have supported the UN Resolution known as the “2030 Agenda for Sustainable Development.” This commits them to achieving water-related SDGs by 2030 by virtue of the fact that they have adopted the Agenda. Recognizing that a commitment is not the same as a strategy, the SDG Agenda calls on member states “to develop as soon as practicable ambitious national responses to the overall implementation of this Agenda,” 1 building on existing planning instruments and national development strategies, as appropriate. 2 Good strategic planning helps responsible authorities navigate the many financial and operational barriers that hinder affordable and sustainable WSS services. A region-wide analysis of the influence of the SDG Agenda on EECCA countries with respect to SDG 6 is beyond the scope of this note. Such an analysis would be useful for understanding how and whether SDG 6 has informed or spurred strategy and planning to meet SDG 6.1 and 6.2 targets. All EECCA countries have updated their national development and some sectoral strategies since the SDGs were adopted and some have incorporated a WSS component that aligns with SDG 6 goals and targets.

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 33 The process of developing and updating WSS strategy is often facilitated by the UNDP, UNECE, FAO, WHO, EU, OECD or other IOs. Some countries have provided detailed reporting on their progress, either through the Voluntary National Reporting (the Kyrgyz Republic provides particularly detailed information on SDG 6)3 or through other documents (e.g. Georgia’s 2019 “Brief Report on the Progress Under the Protocol on Water and Health”). Belarus, Georgia, Kyrgyz Republic and Moldova are among the most active in incorporating both a focus on SDG indicators and/or rural WSS into strategic planning. Belarus took steps early on to meet the SDGs. It set up a national platform for SDG reporting in 2018, established a “Sustainable Development Council,” followed by its first national forum on sustainable development in 2019. With the support of IOs, Belarus approved methodologies for calculating and monitoring SDG 6.1-6.5 indicators and established a fully operational monitoring and reporting framework. 4 It introduced water-related SDGs into its national planning. Its Water Strategy 2030 was drafted in accordance with the Water Code, the National Security Concept and the National Sustainable Development Strategy to 2030. 5 Specific objectives of the draft Water Strategy to 2030 are directly linked to the SDGs, including targets 6.1 and 6.2, and the long-term water security as an overarching strategic goal. 6 Drafted with support from the EUWI+ project and OECD, the Water Strategy has passed through a full strategic environmental assessment (SEA) supported by the UNECE.7 In 2019, Georgia’s Ministry of Environment Protection and Agriculture issued a “Brief Report on the Progress Under the Protocol on Water and Health” evaluating its progress with respect to the UNECEWHO Regional Office for Europe Protocol on Water and Health (1999). The Report references several SDG 6 targets and rural areas, and provides updates on WSS access in rural areas. 8 It also notes (without providing details) that funding for the state program on drinking water monitoring has increased. Moldova’s National Development Strategy ("Moldova 2030") aims to expand access to safe water sources and sewerage utilities. 9 A good example of mid-term planning, Moldova has an Action Plan for 2020-2024 to support implementation of the longer-term 2014-2030 Water Supply and Sanitation Strategy. The Plan aims to improve management of public WSS services, develop public WSS systems to expand access of the population to high-quality services, and align national WSS legislation with EU community standards and international commitments. It includes tentative costs and committed sources of finance. Nationally adapted SDG targets are included in both the WSS Strategy and the National Programme on Implementation of the Protocol on Water and Health, reflecting the country’s commitments to the global sustainability and Agenda 2030. While in most EECCA countries, integration of WSS objectives and specific targets in the NDS is a prerequisite for allocation of public funds for respective targets, Moldova’s WSS strategy objectives are not integrated into its NDS, yet this has not obstructed funding for WSS from the public budget. Kyrgyzstan approved a mid-term WSS strategy in 2016 with the objectives of allocating functions of state administration and local self-government bodies; mobilising investments (domestic and foreign); safe potable water supply access by the population; expanding sanitary facilities coverage; ensuring population access to potable water supplies; improving tariff policy; raising public awareness on the importance of paying for services; ensuring reliable operations and maintenance; and ensuring the financial, economic and institutional sustainability of WSS enterprises. It updated its strategy in 2020 and transformed it into the State Program for Development of Drinking Water and Wastewater Systems for Human Settlements of the Kyrgyz Republic by 2026. The program seeks to expand sustainable access to safe drinking water for

RURAL WATER SUPPLY AND SANITATION: REACHING SDG 6 IN EASTERN EUROPE, CAUCASUS AND CENTRAL ASIA © OECD 2022

34  546 rural communities. Crucially, the program is linked with a budget and funding sources (of which 97% financed by development partners). Other countries have taken steps in the right direction but are not as far along as those cited above. For example, in 2017 Armenia established an inter-ministerial SDGs council, SDGs innovation lab, and an inter-sectoral monitoring team for SDG 6, but still lacks implementation strategy. 10 WSS strategy documents are not the same as passing legislation or allocating budget resources to tackle the problems. (This observation applies not just to WSS sector strategies but to many sectors, and not just to EECCA countries, but globally.) It will be interesting to see if countries that have been proactive in incorporating the SDGs into their strategic planning will be close to reaching the SDG 6.1 and 6.2 targets in 2030. Of course, there are more and less effective strategies. When it comes time to reflect on the 2030 SDG achievements, there may be lessons to learn as to what type of strategy best enables meaningful action and what are key success factors. For instance, is it sufficient attention to detail, rural and urban specificities, or right sequencing, link to budget sources, or alignment international or regional standards, or all of the above?

References Government of the Kyrgyz Republic (2020), “Voluntary National Review on the Implementation of the Sustainable Development Goals in the Kyrgyz Republic.” OECD (2021a), Draft Summary Record of the Capacity Development Workshop on Water-Related SDGs Integration and Implementation in Eastern Partnership (EAP) Countries and Beyond, https://www.oecd.org/env/outreach/Summary%20Record%20Water%20Related%20SDGs%20-06%20Jan%202021.pdf OECD (2021b), Highlights of EU WI+ Assistance to Belarus in Implementing Water-Related SDGs, OECD Publishing, Paris, https://issuu.com/oecd.publishing/docs/euwi__highlights_belarussdg6. OECD (2020), Towards Water Security in Belarus: A Synthesis Report, OECD Publishing, Paris, https://doi.org/10.1787/488183c4-en. Republic of Georgia (2019), “Brief Report on the Progress Under the Protocol on Water and Health.” Republic of Moldova (2018), “National Development Strategy Moldova – 2030”, http://extwprlegs1.fao.org/docs/pdf/mol191490.pdf Government of the Kyrgyz Republic (2020), “Voluntary National Review on the Implementation of the Sustainable Development Goals in the Kyrgyz Republic.” United Nations (2021), “Transforming our world: the 2030 Agenda for Sustainable Development | Department of Economic and Social Affairs”, https://sdgs.un.org/2030agenda

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 35

Notes 1

See United Nations (2021).

Such documents go by different names and include National Policy Dialogues (NPDs), national sustainable development strategies, sector programs, policies, and planning documents. 3

See Government of the Kyrgyz Republic (2020)

See OECD (2021a).

See OECD (2021b).

See OECD (2020)

See OECD (2020).

See Republic of Georgia (2019).

See Republic of Moldova (2018).

See OECD (2021a).

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36 

6 Legal and regulatory frameworks

This chapter considers whether regulatory frameworks clearly define and outline the responsibilities of key actors in the WSS sector, in particular for rural areas. It also assesses whether the frameworks have been updated to align with SDG 6 targets and indicators 6.1.1 and 6.2.1.

Legal and regulatory frameworks in many EECCA countries emphasize the importance of safe and sufficient WSS services for all, but some lack WSS legislation or regulation that allow for feasible and costeffective solutions. Three key issues in the region are legislation and regulations that takes into account rural WSS issues, fragmented responsibilities, and the Soviet legacy. Legislation and regulations are often written without adequate consideration for the unique challenges and access gaps of rural WSS. Small towns and rural communities face constraints that are different from large municipalities. Solutions that work for large municipalities can’t simply be scaled down and applied to much smaller settlements that lack the same population levels and density of urban areas. This affects financing costs and affordability, management and technical capacity, among other things. Furthermore, rural communities, which almost always lack resources and external support, are usually asked to take responsibility for managing their own water systems, which, as the Rural Water Supply Network (RWSN) notes, enables government officials as well as donors to “abdicate responsibility for ensuring long-term sustainable water services.”1 The WSS sector is by nature highly fragmented, with many government agencies at several levels of the state governance and local self-governance system responsible for specific issues under the responsibility. Strong regulatory frameworks clearly define and delineate responsibilities of the various actors involved in sector management and oversight.

 37 Most regulatory frameworks were based on, and some still reflect, Soviet design and construction standards2 (norms and rules, so called SNiPs, which are largely outdated), environmental regulations, sanitary norms, etc. That is, they are based on an approach to provision when energy prices and overall economic viability, local-level management and maintenance constraints were not factors determining design. The following cases illustrate the status of legislation and regulations, and some of the challenges in different countries with respect to WSS access and the relevant SDGs: The strengths of Belarus’s legal framework are clearly defined sector responsibilities and main functions of policy formulation, regulation, and service provision. 3 Its two main elements are the Water Code of 1998 and the Law on Potable Water (1999, amended in 2009) with a number of additional laws, decrees, orders, other sub-law regulations and rules. Belarus has been developing its national framework for SDGs and the State Programme on “Comfortable Housing and Favourable Environment" aligns its indicators with SDG 6.1.1 and 6.2.1 indicators. Georgia’s updated Water Law, along with several bylaws, were drafted based on the EU Water Framework Directive (WFD). As part of the EUWI+ project, the country made progress in harmonising its water legislation with the EU legislation and IWRM principles. Sanitary requirements of drinking water, water quality monitoring and state control mechanisms have been established by technical water regulations. Taking into account that the main source of water supply in Georgian rural communities are noncentralised, the Ministry of Health approved "Sanitary Requirements for Water Quality of Non-Centralized Water Supply Systems" (2001). In 2020, Moldova replaced its 2005 Water Code with the new Water Law, 4 having made improvements in its legal and regulatory framework throughout the 2010s. In 2013, it introduced Law 303 on Water Supply and Sanitation which regulates service delivery and quality and outlines the roles and responsibilities of national, regional, and local authorities in the management, financing, operation, and monitoring of services. In 2017, it introduced changes to its Building Code, becoming one of the few countries to remove some outdated Soviet-era standards:5 for small-scale drinking water supply systems, temporary new design and construction norms were adopted in April 2018 and a new Code of practice was adopted in 2020. For larger scale systems, new norms replacing old Soviet “SNiPs” have yet to be developed. A 2019 amendment to Law 303 allowed local authorities to deliver services themselves or to delegate this mandate to a professional operator under a delegation contract. These are good first steps, but analysis of the law finds ambiguities with respect to the licensing of operators, which primarily impacts rural service and leaves many small local operators without license and economic regulatory oversight. Another issue is the law’s requirement that to be licensed, operators at the commune level must provide comprehensive services (water supply, wastewater collection, and treatment services), a requirement which does not apply to operators in district centres, towns, or cities. 6 A 2019 analysis by OECD found that while legislation is quite strong, particularly in its high but realistic demands on the economic regulatory system, the reality of economic regulation does not yet fully match what the legislation suggests. 7 The Water Code of the Kyrgyz Republic (2005) regulates the use, protection and sustainable development of water resources.. In 2018, Kyrgyzstan, like Moldova, changed its design and construction norms for small scale drinking water supply systems, removing a bottleneck and paved the way for lowercost infrastructure solutions. An OECD study identified dozens of laws, codes, and decrees related to water issues.8 Of these, the law “On Water” (1994) (which subject overlaps with the Water Code); the law “On Drinking Water” (1999) and “Technical regulations on safe drinking water” (2012) are the key documents on drinking water quality and supply. 9 Together, these laws govern responsibilities for provision, asset ownership, water quality, health issues, and local self-government responsibilities. While they inform sector policy and provide a framework for what is possible in terms of reform, because of lack of capacity or

38  bureaucratic processes, they are not always implemented. Furthermore, some aspects of the laws are incomplete or contradictory and require amendments. Ukraine’s WSS legal and regulatory framework is written into various development, housing, and water laws. Under the Law on Local Self-Governance in Ukraine (1997), responsibility to provide housing and communal services (including water supply and sanitation) to settlements rests with the executive committees of the local self-governance authorities. Local self-governance authorities reserve the right to decide who is responsible for the provision of WSS services. The World Bank found that Ukraine’s regulatory structure, and its numerous water operators, are not facilitating efficiency gains (through economies of scale) and sustainability of water systems. Programme of Measures adopted under the Protocol on Water and Health (2011) recognize the importance of ensuring provision of high-quality drinking water and sanitation services to rural and urban residents.

References OECD (2019), Enhancing the Economic Regulatory System for Moldova’s Water Supply and Sanitation, OECD Publishing, Paris, https://doi.org/10.1787/8696bde7-en OECD (2016), Legislation and regulation, key actors, their interactions and their functions in the drinking water and wastewater sector of the Kyrgyz Republic, OECD Publishing, Paris. OECD (2013), Kyrgyz Republic National Policy Dialogue on Integrated Water Resources Management Process and Results for the Period of 2008-2013, OECD Publishing, Paris, https://www.oecd.org/env/outreach/KR_NPD%20Overview.pdf. Naughton, M. (2017), “Community management of water points: more problem than solution? RWSN DGroup discussion synthesis”, RWSN, Skat, St Gallen, Switzerland, https://www.rural-water-supply.net/en/resources/details/786. Vystavna, Y., Cherkashyna, M., and van der Valk (2018), “Water laws of Georgia, Moldova and Ukraine: current problems and integration with EU legislation”, https://www.hydrology.nl/images/docs/alg/2018.03.21_Water_laws_of_Georgia_Moldova_and_Ukraine_EU_legislation.pdf. World Bank (2020), “Moldova Water Security Diagnostic and Future Outlook.” World Bank (2013), “Republic of Belarus Municipal Water Sector Review”, https://ppiaf.org/documents/3710/download.

Notes 1

See Naughton, M. (2017).

Construction codes and regulations (строительные нормы и правила, in Russian)

See World Bank (2013).

See World Bank (2020).

See OECD (2019).

See Vystavna, Y., Cherkashyna, M., and van der Valk (2018).

See OECD (2019).

See OECD (2016).

See OECD (2013).

 39

7 Financing

This chapter discusses gaps, barriers, and opportunities for financing water and sanitation systems. It considers the potential roles of the public and private sectors, as well as community initiatives, in achieving cost recovery.

Overview In many countries, existing financing is far from sufficient to maintain assets and provide adequate service as systems deteriorate and this trend is yet to be reversed. Financing is needed for both capital investments and O&M expenses. Capital expenses (capex) can be sourced from domestic public sector, domestic private sector, international donor agencies and International Financial Institutions (IFIs), and international private companies. Infrastructure needs, and therefore financing arrangements for capex, depend on resource endowments, fresh water sources, energy options to provide the service, geographic factors, community size, etc. Meeting SDG 6.1 and 6.2 will depend heavily on how financing is mobilised, targeted, prioritised, and allocated, and how cost-effectively it is used. Recurrent operational and maintenance costs (opex) are normally derived from the cashflow from user charges, sometimes complemented by subsidies from central or local governments. In many countries, existing financing is far from sufficient to maintain assets and provide adequate service as systems deteriorate. In each EECCA country, there is room to increase operational efficiency and a need to improve existing or identify sound financing mechanisms, which often includes increasing tariffs. These challenges, and a lack of confidence amongst financers that projects will be sustainable, make it difficult to attract external investments and project funding. As challenging as it is to finance urban WSS, where a typical urban utility operates with plenty of inefficiencies (oversized system, old and inefficient pumps, leaking pipes, often over-staffing etc.), the rural WSS sector has serious difficulties in attracting any public or bank financing at all.

40 

Financing options A sustainable cost recovery principle needs to inform financial planning. It entails securing future cashflows from appropriate combinations of the “3Ts”: tariffs, taxes (i.e. funding from collected tax revenues), and transfers (from Official Development Assistance, etc.). The revenue stream from the ultimate sources of finance should be used as the basis for attracting repayable sources of finance: loans, bonds and equity, depending on context, as well as a sound combination of cost, quality, and service level. 1 It is also important that local authorities and responsible organisations (often community-based non-profits) have capacity to manage finances, and that accountability and transparency mechanisms are in place. A range of financing options can be appropriate for rural WSS, including microcredit and hybrid forms combining commercial loans with philanthropic or ODA grants, or household financial or in-kind contribution. Financing needs of, and investments in, WSS vary greatly across countries and regions. In Russia alone, there are striking differences in the levels of per capita WSS capital investment by region, occurring at a much higher rate than income disparity. 2 This may be related to large regional disparities in regional development, reflected in average household income and public revenue per capita. An additional factor may be differing public spending priorities, which can depend on the region.

Tariffs Tariffs in EECCA are generally very low and do not cover operational costs, let alone maintenance, capital, environmental, and resource costs (in line with WFD requirements). 3,4 Setting tariffs (and fees) to cover full amortisation is especially difficult when infrastructure is overbuilt and is therefore more expensive to operate, maintain and repair. 5 Where tariffs are low and affordability is high, there should, in theory, be room to raise revenues through higher tariffs. 6 Artificially low uniform ariffs can disproportionately benefit the wealthiest (who can most easily afford higher water bills) and challenge the long-term sustainability of WSS systems by compounding inefficiency and increasing cost of service provision, e.g., through increased usage and supply. Setting appropriate tariffs can play a fundamental role in minimizing the financing gap, given relatively limited external funding, but must address social and political concerns about affordability, especially for poor and vulnerable groups. Though there is relatively high WTP for WSS services in rural areas, ability to pay is still nominally low. 7 In addition, rural households may have different types of income (cash vs inkind) and cash-flows (seasonal fluctuations) - factors that pose additional risks from user-charge revenue perspective. One reason for the mismatch between WTP and service level is low political will and willingness to charge. Governments are frequently more anxious about the political implications of raising tariffs than they are motivated by the associated benefits of increased service. This is despite the fact that the high tariffs may ultimately be more affordable and beneficial in the long run by enabling financially sustainable utilities. Furthermore, bill collection rates in rural areas are often low. Just increasing collection rates can improve the balance sheet of the utility. For example, in Ukraine, between 1999 and 2004, collection rates increased from 55 percent to 85 percent.

Taxes (government budget) Local authorities in charge of water infrastructure typically do not have the financial resources they need to fulfil their mandate. In the early 2000s, EECCA governments began to establish central budget funds to subsidise WSS investment. For example, Ukraine and Kazakhstan have funds for municipalities and

 41 utilities to make investments to prevent accidents or improve system efficiency. However, in the case of Moldova, local public authorities (at the village and settlement level) are often the regulator, owner, and operator of infrastructure. 8 Through the National Policy Dialogue (NPD) on water, facilitated by the OECD and UNECE with support from the EU and several other development partners, Kyrgyzstan developed a national financing strategy for urban and rural WSS in 2009, including an agreement on targets in 2013 and policy recommendations to achieve the MDGs for WSS. It then adopted a WSS strategy and integrated its targets into the National Strategy for Sustainable Development, and in 2020 adopted a new State Programme for WSS to 2026 that made public funding available for implementation. As described above, Moldova adopted a WSS sector strategy and associated mid-term action plans which are funded by the public budget and donors.

Transfers (ODA) Donors contribute to rural WSS development by providing (i) policy advice and technical assistance, and (ii) grants, equity financing or credit/loans for investments in WSS infrastructure and services. However, the region is not necessarily considered a “high priority” area for improving WSS access as compared to other regions (e.g. Africa). Some EECCA countries may no longer be eligible for certain types of loans and concessional terms and may have "graduated" to stricter (market-based) terms because of higher incomeper-capita levels and other criteria. Policy advice and technical assistance A financing strategy methodology supported by the computer-based FEASIBLE model was developed to support strategic planning at the country and province level. The computer-based Financial Planning Tool for Water Utilities (FPTWU) was created to assist water utilities and the municipalities they are located in, originally in EECCA countries. The FPTWU promotes medium and long-term operational and financial sustainability through thorough investment planning. The tool helps to enhance the utility’s financial management practices and orient it towards a medium to long term planning horizon, organise data that helped to provide an integrated and systematic overview of the situation of the water utility, and improve the capacity of the financial and economic management staff of the water utility. 9 It was first applied at the Bishkek Vodokanal (water utility) to develop a tool tailored to the needs of the utility and assisting it in improving financial planning for operations and capital investments. Grants, equity financing or credit/loans for investments In Belarus, for example, the World Bank approved a project in 2020 to improve the quality, efficiency and sustainability of water supply and wastewater treatment services in six participating oblasts. The project included rehabilitation and improvements in water supply networks, installation of iron removal stations, and rehabilitation of wastewater treatment plants (WWTPs), associated facilities (pumping stations, sludge dewatering, small laboratories, and so on), and sewerage networks. 10 This type of arrangement is far less common in rural areas, however. Urban WSS companies can take advantage of much greater operational scales, capacity, and larger and denser populations, all of which are features which small settlements in rural areas lack.

Reducing costs and the importance of context-specific approaches Financing mechanisms leverage resources, create incentives for higher efficiency, and improve targeting. They need to be considered in the context of the country-specific reform. For example, WSS service improvements are most viable when government policy enables community share in infrastructure finance, a good base and outreach available of strong community-based organisations, and interest among domestic financial institutions. 11 WSS expansion – and associated financing – needs to consider the

42  customer base i.e., the level and quality of service that households are willing and able to pay for. A demand-responsive approach means that administrative decisions about levels of service, location of facilities, cost recovery and O&M are made locally as well. Similarly, subsidies in rural areas with low WSS coverage should be linked to affordability, willingness-to-pay, and financial viability at scale. Financial incentives can be introduced to promote sector reforms, including through decentralisation-linked mechanisms to support local-level reforms, special fund mechanisms earmarked for supporting reformlinked programs, local partnerships, or difficult institutional reforms, and programmatic approaches to link sector financing to sector-wide programs.12 Some donor-funded pilot projects, including on Kyrgyzstan’s community-led water systems, focus heavily on this principle of design based on community needs and characteristics.13

Box 7.1. Central Asian Alliance for Water Good quality drinking water supply is a perennial problem in Kyrgyzstan, especially for its 1805 villages. In over 600 villages dilapidated pipes compromise the quality of the water, and in over 300 villages have no water system at all. Aside from the infrastructure problems, it is extremely challenging for individual villages to manage their systems without support. Community water user associations (called “Community Drinking Water User Unions”) are the default model for managing rural water in Kyrgyzstan, but many barely function or have collapsed, in which case the local government (ayl akmotu) or district government (rayon) usually takes over. A municipal enterprise models have been tried, but it is difficult to find experts to manage them. The Central Asian Alliance for Water (CAAW) illustrates what support might look like. It is a community-centred initiative in the Fergana Valley, managing water and providing sanitation solutions in Kyrgyzstan and Uzbekistan. Launched in 2001 following a successful pilot project under International Secretariat for Water (ISW), CAAW provides affordable, reliable water to villages, supporting committees to operate and maintain autonomous and efficient water systems, and installing dry latrines for households. CAAW constructs water systems by providing 70% of the cost of construction, with village residents providing the rest. It has increased water provision from just a couple of hours per day to 6 hours, and in some villages to 24 hours per day. The Alliance ensures affordability through microcredits and affordable monthly charges, and includes women in decision making and operations, a key success factor. By 2008, the project had created access to safe water in 17 villages without central water supply and ensured that 83 000 people have daily access to safe drinking water. Source: Women in Europe for a Common Future (2008)

Using sustainable business models including private sector participation Because public resources are often inadequate to meet costs of expanded coverage, some attempts are made to attract private sector participation (PSP) and investments, promote local investments through development of local credit markets, and enhance household and community resources for water and sanitation.14 Where the performance of water utilities is poor, some countries and municipalities have turned to performance-based contracting.15 The private sector has the potential to play an important role in supporting water sector reforms by leveraging investment in the region. However, WSS systems in rural areas are often too small and costly to be an attractive investment for international private operators, have higher costs of capital than the public sector, are perceived to have high levels of political and regulatory risk, and lack of reform at the local level. For this and other reasons, most EECCA countries did not made significant progress in improving public sector participation in WSS through the early 2000s. 16 Reluctance of municipal authorities to engage

 43 in PSP arrangements have also deterred greater private sector involvement. 17 Exceptions are generally where private companies own the infrastructure (as in Georgia) or have long-term lease agreements (as in Armenia).

References Eberhard, R (2018), “OECD – GIZ Conference: Closing the gap for water in line with SDG ambitions: the role of blended finance”, https://www.oecd.org/water/OECD-GIZ-Conference-Perspectives-Rolfe-Eberhard.pdf Mehta, M. (2003), “Meeting the Financing Challenge for Water Supply and Sanitation”, https://www.ircwash.org/sites/default/files/Mehta-2003-Meeting.pdf. OECD (2019), OECD Studies on Water, Enhancing the Economic Regulatory System for Moldova’s Water Supply and Sanitation, OECD Studies on Water, OECD Publishing, Paris. OECD (2018), Guidelines for Introducing Sustainable Business Models in Rural Water Supply and Sanitation to Achieve Greater Levels of Water Security, OECD Publishing, Paris. OECD (2011), Meeting the Challenge of Financing Water and Sanitation: Tools and Approaches, OECD Studies on Water, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264120525-en OECD (2009), Strategic Financial Planning for Water Supply and Sanitation, OECD Publishing, Paris, https://www.oecd.org/env/resources/43949580.pdf. OECD (2008), National Policy Dialogue on Financing Strategy for Rural Water Supply and Sanitation in Armenia, OECD Publishing, Paris, https://www.oecd.org/env/outreach/42984132.pdf. OECD (2007), Financing Water Supply and Sanitation in EECCA Countries and Progress in Achieving the Water- Related Millennium Development Goals (MDGs), OECD Publishing, Paris. https://www.oecd.org/env/outreach/39174956.pdf Wardle, C. (2010), “Building the capacity of village communities to manage the provision of clean drinking water: lessons from Kyrgyzstan”, International NGO Training and Research Centre (INTRAC), Praxis Note 57, http://www.intrac.org/data/files/resources/697/Praxis-Note-57-Building-the-Capacity-of-Villages.pdf. Women in Europe for a Common Future (2008), Public Association “Central Asian Alliance for Water” “Women community leaders managing rural sanitation programs in Central Asia”, https://www.un.org/esa/sustdev/csd/csd16/sideevents/presentations/14may_caaw.pdf World Bank (2020), “Belarus: Water Supply and Sanitation Project (P101190)”, http://documents1.worldbank.org/curated/en/231531581348950507/pdf/Belarus-Water-Supply-and-Sanitation-Project.pdf.

44 

Notes 1

See OECD (2009).

See OECD (2011).

See OECD (2008).

See OECD (2018).

See OECD (2008).

Perhaps with the caveat that the relative costs of other utility services, such as electricity, are also taken into consideration.

When measured as a share of household income – so nominal WTP may actually be lower than in urban areas

See OECD (2019).

See OECD (2011).

See World Bank (2020).

See Mehta, M. (2003).

See Wardle, C. (2010).

See Mehta, M. (2003).

See OECD (2011).

See OECD (2007).

 45

8 WSS dashboard: Concept and example

This chapter introduces the concept of a WSS dashboard, intended to help countries and development partners optimize resource allocation and maximise efficiency in order to make solid progress on the SDGs.

Objectives For a sound governance of the sector, governments need tools to help them assess the present situation and monitor trends, identify relative strengths and weaknesses, key issues and existing opportunities. Preparing and publishing annual reports on WSS sector performance would be one useful instrument. Another complementary tool to support decision-making by both governments and their development partners (DP) might be a dashboard that would: •

•

46  •

Help DPs provide aid more cost-effectively and reduce the inefficient use of funds by identifying the sequence of intervention/assistance.

Such a dashboard might be composed of clusters such as those in the example presented in Figure 8.1.

Figure 8.1. WSS clusters

Source: authors’ elaboration

Format How might this dashboard, and accompanying rating system, look? The dashboard would organise countries by clusters, according to the status/level of development of the issues critical to meeting SDG 6. The critical issues assessed in this dashboard begin at regulation and end at household level access – that is from paper, plans and design documents to pipes and taps. The dashboard would rate key dimensions considered critically important for provision of sustainable and affordable water supply and sanitation. A barometer-type instrument could also be used which groups countries according to their status/level of achievement with respect to key elements of a functioning WSS system. Colour codes would indicate where a country or cluster stands with respect to a given parameter. It could include indicators that can be obtained from national water agencies and statistics agencies, or rapid assessments. Census and survey data could be used as well. Alternatively, or in tandem with the country dashboard, one could be developed which provided pertinent information on development partners engaged in the WSS sector in EECCA, indicating how much and what type of technical assistance they are providing, what areas they are investing in, and how much.

 47 Some ratings would be quantitative (e.g. access levels, budget allocations, to the extent these data are available and reliable) and others qualitative (e.g. based on expert analysis, management quality or on the presence and quality of legislation, or norms for rural areas). The feasibility and usefulness of such a rating system would depend on the information and data being reliable and updated regularly, an issue with the JMP database. With a more comprehensive set of indicators, EECCA governments and their development partners deciding how to allocate funding could identify which areas (or countries) to focus on, and within a country, the barriers which prevent sustainable delivery of WSS services and systems. Assuming that establishing and regularly updating such a dashboard would not consume too many resources for collecting data, staff time etc., the dashboard would inform decisions of EECCA countries as well as their development partners on optimizing the allocation of resources (including public funds and technical assistance, and ODA) according to need and following sequence that takes into related constraints and requirements. *** One can argue that the “gold standard” of policy and development is to identify the root cause of problems and focus on alleviating them. Each problem in the WSS sub-sector can, in theory, be traced back to a prior problem or set of problems. As discussed throughout this note, the sequencing – of policy, regulation, and financing – matters. It is generally necessary for WSS services to be supported, financed, properly implemented, and sustainably operated. At every level, there are both barriers to and opportunities for progress. To address chronic problems in the WSS sector, the entire system – from legislation on paper to the water flowing out of taps (and effluent flowing into sanitation systems) requires coordination. Figure 8.2 shows how such a sequence might look. It is included here to stimulate discussion. It could, for example, inform country or development partner evaluations of where, and whether, to allocate resources.

48 

Figure 8.2. Outline of a sequence

Source: authors’ elaboration

Possible next steps The dashboard concept outlined here is only starting point for discussion. The concept would need to be piloted and developed further, reworked with an eye on utility and feasibility. This pilot try (i) would illustrate that the idea is generally implementable and (ii) will help identify additional caveats and data gaps, as well as opportunities. However, there is also a risk that the dashboard would be costly to complete, and, like JMP data, not updated frequently enough to be useful. Placing additional reporting burdens on countries which already may be struggling with incorporating SDG 6 into their national frameworks may defeat the purpose.

References OECD (2009), Strategic Financial Planning for Water Supply and Sanitation, OECD Publishing, Paris, https://www.oecd.org/env/resources/43949580.pdf.

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9 Conclusions

This chapter concludes the report by summarizing the key challenges, opportunities, and possible scenarios moving forward.

EECCA countries’ particular challenges Since 2000, coverage of safely managed water and sanitation has been increasing worldwide, but not at a pace to meet SDG 6 by 2030. Indicators in EECCA countries also show improvements, although since surveys are not conducted regularly enough the data might be not reliable or up to date. SDG monitoring reports finds that challenges for reaching SDG 6 exist in all 12 countries in the EECCA region. Challenges are rated “significant” in eight countries and as “major” in two. Doubts that countries will reach SDG 6 are reinforced by the small amounts of financing earmarked for the sector, both from public and ODA sources. Furthermore, few countries have taken the steps generally considered critical to reaching the goals, including i) developing a WSS sector strategies and mid-term plans that align with the SDGs and also address rural specificities, ii) revising their legal and regulatory frameworks, and iii) earmarking budget and mobilising other domestic resources for implementation. Without these elements in place, it will be difficult to take the necessary measures to close the access or service quality gap, or to attract ODA. Financing is critical for the development of new WSS systems and the rehabilitation of old ones, as well as for promoting cheaper, self-supply solutions. However, conditions must be right, or funds will not flow. That generally means strategies, planning, rules, and budgetary resources need to be in place. Without these, potential donors will understandably be sceptical that real progress at the country level is likely.

50 

The scaling challenge There are examples throughout the region of communities benefiting from well-managed and sustainable systems. But these are localized successes, at sub-regional levels; they are not scaled to the national level. That is, no country has created and implemented a successful WSS model covering all or even most rural settlements. It can further be observed that successful application of a business model in one country does not lead to its replication in other countries. For instance, there is no urban PPP plan outside of Armenia that incorporates a significant number of rural villages under its management, highlighting how context specific such approaches are. Pilot programmes are not scalable solutions. They are resource intensive, attention intensive, and seem to work best exactly where they are implemented, on behalf of the participants. They generally don’t do much for anyone else, other than to serve as case studies in reports like this one.

Integration into policy and budgetary frameworks Integration of WSS into national policy and budgetary frameworks is critical for opening up opportunities for sector development. Few countries have been able to achieve meaningful progress without first prioritising WSS and integrating it into national policy and budgetary frameworks. If WSS is not officially prioritised, countries may miss out on significant resources for WSS development and rehabilitation. Policy integration is considered key for receiving public funding and is typically a positive signal for donors looking to support WSS as a national priority. This holds true especially for rural areas, which are typically low on the list of a country’s WSS and (other sector) priorities. In order to make progress in expanding and improving WSS provision, it is up to government officials responsible for WSS sectors, parliamentary deputies and others to do what it takes to make sure that national strategy and policy documents, such as the National Development Strategy, refer to WSS. Indeed, it would be odd to expect a country to attract funding or reach SDGs if it doesn’t signal the seriousness of its commitment by baking the goals and targets into its core policy and strategy documents. Integration is generally a low cost (although considerable political effort may be required) high impact action that requires political will and perseverance. The addition of a few paragraphs about WSS can unlock resources and move WSS issues up the priority list. There are few exceptions to the importance of integration, such as in Moldova, where WSS services are highly valued in both the political and social spheres, and has allowed progress in the sector despite lack of integration into the NDS. However, in most countries, without inclusion in these documents, followed by integration in the mid-term and annual public budgets, the sector will struggle to receive public funding and donor support. Development partners need to see that their client values the services they are considering financing.

WSS and other sectors Experience shows that when WSS is treated as a stand-alone sub-sector issue, it can get side-lined. WSS should be taken into account when developing also other sectoral development programs or policies, such as agriculture and rural development, as well as territorial development plans. The WSS sector has implications for both of them, and is impacted by policies and practices of these sectors.

 51 These sectors must strike a balance and find ways to maximise benefits and common goals while minimizing potential harms and expenses. 1 For example, introduction of certain agricultural practices such as irrigation or economic incentives for higher use of agri-chemicals while increasing yields might impact water quality (potential for pollutants or toxins) and availability (resource intensive practices). Educational development plans, on the other hand, should work to ensure WSS access in schools because of the strong correlation between success in the two sectors. Integration and policy coherence bring opportunities but does not guarantee success. They should be thought of as a foundation upon which other key elements of a strong WSS enabling environment, e.g., political willingness and financing options, can be built.

Challenges specific to the EECCA region Beyond the usual list of challenges associated with WSS, and rural WSS in particular, we posit that EECCA countries faces these four region-specific issues. 1) Stubborn norms. Construction and consumption norms applicable to WSS are generally outdated and there is a reluctance to consider cheaper solutions. Introducing and amending legislation is always a slow process. But the fact that 30 years after the break-up of the Soviet Union only a few countries (e.g. Moldova and Kyrgyzstan) have introduced new norms for WSS infrastructure in rural areas is discouraging. This is possibly linked to a certain understanding among policy makers, engineers and others in the WSS sector about how things should be done, and that often means, “the way they’ve been done for decades”. 2) The last mile and increasing marginal costs. There is a good reason the gap persists; the “last mile” is often the hardest to reach because the more amenable areas (both in terms of issues and regions) have already been dealt with. The marginal costs, in terms of innovation, financing or effort, of closing the gap increase the closer one is to the goal. 3) Too good to be true. The data reported to the JMP and UN is not always reliable or precise, so that EECCA performance looks better on the dashboard than it does in reality. Most rural sanitation is classified as “other.” That is, it is neither sewerage nor septic, which may in turn imply poorer tracking and understanding of how safe it is, reducing confidence that the category truly meets SDG standards. The rosy numbers reported by countries may reduce both attention and financing from both public budgets and donors. 4) Flattering comparisons. EECCA countries’ relatively good WSS indicators, even if not completely reliable, may not work in the region’s favour, at least from an SDG perspective. This is because EECCA countries perform better than countries in poorer regions. Coupled with slow progress in aligning policy and legal frameworks with SDG 6, this may make it somewhat more difficult to attract donor funding. If donors have to decide how to allocate funds and get more bang for their buck, they will likely first turn to regions where the gaps are widest, such as Africa.2 UNWATER estimates that a mere 2% of global WSS funding going to Europe and North America, for example.

Looking ahead To avoid a business as usual scenario, which would involve muddling through, making gradual progress in addition to some setbacks, but not reaching SDG 6 by 2030 (perhaps by 2050?), a change in approach is needed. Countries and development partners may want to do the following:

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Redouble efforts: Pour more funds in, and focusing on, capacity building, but without analysing why progress has been so slow to date.

•

Do a better job of selling the benefits of WSS: Persuade governments that investing money and political capital (much more than they currently do) in WSS will pay off.

•

Pick winners: focus on the easiest, lowest-cost targets for assistance, e.g., in communities which meet certain criteria (motivation, capacity, low-costs) to move the needle more quickly in the right direction.

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Rethink the entire approach to WSS: Combine innovation, and out of the box thinking to transform the sub-sector. Perhaps this involves figuring out the right incentives, addressing the market failure in such a way that private sector gets excited, changing behaviour, etc.

References OECD (2021c), Managing water sustainably is key to the future of food and agriculture, OECD Publishing, Paris, https://www.oecd.org/agriculture/topics/water-and-agriculture/

Notes See OECD (2021c). in passing that, according to UN classification, the 12 countries that make up EECCA are split, into two regions, Europe and North America and Central and South Asia. They don’t truly fit well in either. The first region encompasses mostly performing, high-income developed countries with few of the issues (overcapacity, Soviet legacy) that EECCA deal with. In the second region, South Asia (population 2 billion) completely swamps Central Asia (73 million) and also doesn’t share the same issues. 1

2 We note

The global community is just nine years away from 2030, the target year for the United Nations Sustainable Development Goals (SDGs). If current trends hold, however, many countries in the Eastern Europe, Caucasus and Central Asia (EECCA) region will likely not reach their goals in the drinking water and sanitation sub-sectors (SDG 6.1 and 6.2). Despite apparently high access rates to improved Water Supply and Sanitation (WSS) in EECCA countries (at least in urban areas) as reported by the Joint Monitoring Programme (JMP), one of the most persistent and challenging issues in the region remains low access to reliable supply of drinking quality water and to proper sanitation in rural areas. Taking stock of the WSS situation in the EECCA region, with a focus on rural areas and country-level access and service indicators, this note reflects on the key challenges, barriers, and opportunities for achieving SDG 6.1 and 6.2 targets. It relates these to the respective legal and regulatory frameworks, sustainability issues, domestic financing and Official Development Assistance. This analysis is conducted within the framework of the GREEN Action Task Force for which the OECD serves as a secretariat. This study was undertaken by the OECD with the financial support of the Government of Germany. Their contribution is gratefully acknowledged.

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Rural Water Supply and Sanitation: Reaching SDG 6 in Eastern Europe, the Caucasus and Central Asia

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2 Barriers

4 Affordability and costs