Along with other development partners, ADB has contributed significantly to the development of an enabling environment for private sector engagement in the provision of WSS services in Armenia. This would not have been possible without ADB’s long-term engagement in the sector through this project and other interventions. ADB support to draft the PPP law (approved in June 2019) and continuing support on regulations will further enhance the enabling environment. In hindsight, better sequencing of support for the wider PPP regulatory environment in advance of the national lease would have enhanced the project’s impact. The new law nevertheless provides much-needed traction for continued private sector participation in the sector.
The ability to evaluate project performance and benefits was seriously compromised when the collection of performance data was discontinued even though collection was required under the loan agreement. The PPMS for the project was complex and was maintained only for the duration of each loan’s implementation period. The decision by the government to pursue a national lease effectively interrupted the PPMS reporting cycle for the additional financing loan in 2016. Even though AWSC was effectively absorbed by the new operator, reporting could have been maintained with the executing agency. Although the interruption in reporting under the additional financing loan is understandable, no reason was given as to why performance data was not collected for towns and villages supported under the first loan through to 2015. A less onerous and more simplified PPMS focused on selected key indicators could have facilitated more continuous monitoring.
The project’s high target levels for NRW, at 70%, reflected a low priority given by both government and ADB. There were no specific actions outlined in the project design to achieve reductions in NRW. Metering should have improved the ability to monitor and control losses. Although impressive results in metering were achieved, the priority appears to have been to improve collection efficiency rather than seriously address NRW. Even for the demonstration village of Malishka, which performed well (achieving 100% water supply coverage and metering, 24-hour water supply, and 100% collection efficiency), no NRW results were presented in the PCR. While the PCR highlighted success in addressing NRW, there was no commensurate discussion on reasons for these achievements or indications as to what worked well and what did not. By the same token, the high key performance indicator target set in the national lease, at circa 80%, also reflects that the government gives this low priority.
This validation assessed the program achievements against what was intended. However, ideally the reform’s overall impact should be assessed by how much investment in road and urban water increase—which the PCR did not discuss in detail. This program might have been better designed as a sector development loan, which combine program and investment loans.
The measurement of impacts and outcomes was not given due importance and the quality of the PCR report suffered. For example, the conduct of the traffic surveys was insufficient and the results were conflicting. No explanation was given as to why the post-construction traffic deviated from the forecast.
Considering that this was the first ADB loan for the transport sector in Armenia, the agencies were not familiar with ADB policies, systems, and requirements and would need to have sufficient capacity development in these particular skills.
The project’s newly established project management unit had limited understanding of FIDIC (Fédération Internationale des Ingénieurs-Conseils) conditions of contracts, which led to several misinterpretations of the contractual provisions and resulted in delays. This highlights the need for additional due diligence and monitoring in future projects to ensure that the borrowers and executing agencies, which are new to the use of FIDIC contracts, understand said contracts. In such cases, ADB should advise the borrower to assess the difference between the legal practices under a FIDIC contract and the prevailing national contracting laws. As part of project preparation, ADB could also explore providing first-time FIDIC contract users with TA support to train and engage senior legal advisors to resolve any legal differences between a FIDIC contract and national legislation.
The project encountered challenges in road maintenance during design, construction, and operation. Pavement quality was substandard, and though the contractor was already penalized, future maintenance and repairs could be expensive. Vehicle and axle load regulations are not fully implemented and may lead to overloading that could further damage the road. In future, project teams should more carefully examine the institutional arrangements, as well as human resource and institutional capacities, for road asset management and maintenance of key sector agencies to determine whether these are adequate to sustain the project roads throughout design life. Measures to address capacity gaps, including provisions for staff training and equipment, should be incorporated in the design of projects. An administration system or institutional arrangement to embed asset management and road maintenance in the regular functions of key agencies should also be elevated into a sector reform agenda. Under this project, the covenant for road maintenance was waived at government’s request. It is being worked out under tranche 3, together with an asset management and road maintenance administration system that is being prepared as part of a long-term road subsector plan.
The project road is in a climatic zone prone to regular freezing–thawing cycles in winter. Annually, the temperature ranges from –30° to +40° Celsius, with frequent sudden changes within a short period. Under such conditions, concrete slabs experience intensive expansion and compression cycles, which may negatively impact their service life and maintenance cost. Weather during design, construction, and operation should be considered in selecting future pavement types.
The project could have benefited from a more thorough planning and design. Flaws showed in the initial bidding and procurement documents that were not specific enough and thus led to a failed bidding. Improvements were achieved when civil works under tranches 1 and 2 were combined in a single package to attract a larger number of qualified bidders. The final physical outputs included a concrete pavement on one road section and safety upgrades that led to the full reconstruction of 19.6 kilometers of another section of the country’s north-south corridor. But it took the project a 3-time extension and an overall delay of about 30 months to deliver these outputs. (Preparation, Implementation: ADB-assisted road projects, project readiness ADB-assisted road projects)
As they impose budgetary constraints, fiscal and economic downturns can provide governments the opportunities to improve their financial management systems. They also provide the basis for the provision of PBLs, which generally aim to provide budgetary support for policy changes that improve the growth prospects of developing member countries. Where strong government support for reforms exists, it will be most beneficial to link the reforms with sector assistance, ensuring that these reforms are politically and technically feasible. ADB should also continue to seek synergies with other development partners in designing and implementing PBLs as well as other responses to financial and economic downturns.
Successful implementation of transformational policy actions is largely dependent on government commitment to bring about essential reforms. To deepen this commitment and share knowledge about the what’s and how’s of implementing reforms, ADB and other development partners engage member governments in high-level policy dialogue. Under this program, policy dialogue comprised the key instrument for hammering out the substance and direction of policy reforms and ensuring their successful operation. To sustain momentum and maximize benefits, ADB approved phase 2 of this PBL in November 2016, under which phase, the reforms achieved by this program would be strengthened and extended to the energy sector. Despite the deteriorating macro and fiscal situation, the government proceeded with the phase 2 PBL, signaling its commitment to continually enhance public management reforms.
Program preparation benefited from several consultations within ADB’s infrastructure divisions in the Central and West Asia Department. These consultations provided the linchpin to the discussion of lessons from previous similar ADB projects, incorporation of which enhanced program design and processing. Knowledge−sharing continued to be fostered throughout implementation to ensure that the reforms pursued by the program were responsive to the country’s needs and implementable within existing fiscal and institutional conditions.
During the design of the program, the government and the Asian Development Bank (ADB) conducted broad consultations with key stakeholders to promote understanding of the proposed reforms. Consultations with community service organizations focused on internal audit reforms and other key issues related to promoting transparency and accountability. While generating feedback, these consultations also served as platforms for stakeholder participation which developed in them a sense of ownership and commitment to the reforms embodied by the program.
Tracking and enhancing the implementation of this project’s gender action plan (GAP) was a huge challenge because of the absence of gender-disaggregated data. This issue should be prioritized by ADB in discussions with government counterparts and addressed right away during the preparation of water and sanitation projects in Armenia. Developing community ownership of the GAP in ADB-assisted projects in the country should be pursued more innovatively. Participation of a gender specialist in ADB project review missions should also be ensured.
Whether public or private, service utilities need to adjust tariffs to meet normally increasing production costs. These adjustments would be most pressing, and if not met, can be detrimental for utilities that need to expand to smaller towns and villages without adequate infrastructure. AWSC offers a striking example: although it significantly increased revenues through higher sales volume and billing and collection rates, because the government did not approve any tariff increase during the 10-year project lifespan, the AWSC did not achieve cost recovery and became increasingly unsustainable. On the other hand, the project observed strong reluctance among poor communities to be connected to clean piped water systems because of tariff implications. Perhaps accounting for why government did not favor tariff increases under the AWSC, community behavior that could deter the provision of safe water for all need to be addressed in future projects.
The government explored two PPP approaches to enhance the performance of its two major water and sanitation utilities—a management contract for the Armenia Water and Sewerage Company (AWSC), the regional utility servicing 37 towns and 300 villages, including the project sites; and a lease contract for the Yerevan Water and Sewerage Company, servicing the capital city. Following the merger of these two and other regional utilities in 2017, it decided to lease out the management and operation of the national utility to a transnational water and energy services company. Government decision was premised on the benefits identified from economies of scale, lower management cost, opportunities for significant reduction in energy use, and the expectation of reductions in losses from nonrevenue water. While the government did not choose a management contract, this project’s preparatory processes found the said PPP approach to have significantly improved the efficiency of the AWSC—increasing revenue collection by 24% and the number of metered connections by 76%; and decreasing energy costs by 15%, water losses by 20%, and number of employees by 40%, during its first 2.5 years of operation. The approaches highlighted by this project may be considered in future similar interventions.
During project preparation, a policy and legal framework was in place to guide the development of the water and sanitation sector in Armenia. The use of the sector loan modality was appropriate in this context as it provided ADB and government counterparts with a comprehensive instrument for responding to the sector priorities identified in the framework. Building on this project’s experience, future similar projects should ensure that subproject selection criteria are well-defined and provide a clear basis for identifying priority investments that may differ in scope but are all focused on achieving the sector priorities reflected in the project’s results framework. Without such element, implementation of this project, which took 10 years and a total of 35 subprojects, would not have been as effective as it was in improving water service delivery and sector performance in the project area.
While processing the project, the Asian Development Bank (ADB) worked closely with government counterparts to establish the PMU through advance procurement and retroactive financing. Early establishment of the PMU facilitated timely project completion and the closing of the first loan 4 months ahead of schedule. Similar experience in many more projects supports the value addition of advance action to timely project completion.
The combination of PBL and FIL employed by this program was key to its success in addressing the broad range of supply- and demand-side obstacles to the growth of women entrepreneurship in Armenia. The PBL was essential to undertaking the necessary reforms to create an enabling environment; while the FIL component provided the liquidity needed to deliver financing to women entrepreneurs in this improved enabling environment. Drawing on this experience, future interventions can explore combining a PBL and an FIL to achieve better results in promoting women entrepreneurship.