June 2022

Rural Water: A Billion Dollar Loan Fund, and the Path to Better-run Water Utilities

As of 2020, Vietnam had the highest levels of rural water coverage among any country of comparable economic level, with coverage equivalent to countries with two to three times its per capita Gross Domestic Product (GDP). We were curious: what was the contribution to this success by the billion dollar Asian Development Bank Water Sector Investment Fund (“the Fund”)?

REAL-Water Podcast: Hubert Jenny

To answer this question, we invited Hubert Jenny, formerly of the Asian Development Bank (ADB) and now consulting for UNICEF, for a conversation on the REAL-Water podcast (available on Anchor, Spotify, and Apple Podcasts, among other platforms).

Hubert designed and oversaw ADB’s ten-year, $1 billion loan fund initiated in 2010 to support Vietnamese water companies’ measures for improving performance. Set up as a Multitranche Financing Facility, the program was meant to support institutional reforms, most notably a 2007 central government decree mandating that Vietnamese public service providers achieve full cost recovery.

Figure 1. Quote from Hubert Jenny formerly of the Asian Development Bank and now consulting for UNICEF. Credit: Aquaya Institute

On the REAL-Water podcast, we consider questions of rural water supply through the lenses of governance, financing, and innovation. We asked Hubert how the Fund he managed came into being and what lessons the recent Vietnamese water sector experience can offer rural water supply development.

Rural Water Governance

With respect to governance, we were struck by the role of champions — both key stakeholder institutions and individuals with commitment, motivation, and skills to make transformative change. The Vietnam Womens’ Union and the Vietnamese Fatherland Front both command enormous influence in the country, so persuading each group of the value of the Fund for improving water utility performance was instrumental to the Fund program’s embrace by government officials and communities. During 18 months of preparation, Hubert and his colleagues convened public stakeholder workshops (open to the media) every three months which, together with their regular contacts, turned these key groups into the Fund’s biggest supporters.

Individual champions can also play a critical role: Hubert pointed specifically to Truong Cong Nam, the President and Director of the Thua Thien Hue Construction and Water Supply Company (HueWACO), in central Vietnam. HueWACO, in which the Fund invested, is among the best performing provincial water utilities in Vietnam. We were fascinated to learn that Mr. Nam has been mentored by the acclaimed Cambodian engineer Ek Sonn Chan, who won international accolades for transforming the Phnom Penh Water Supply Company from a utility in ruins into one of the best performing in Asia.

Personnel of HueWACO surveying a conveyance expansion in a new rural water supply system for whom they were assuming operation and management responsibility. Photo credit: Aquaya Institute.

Rural Water Financing

Critically, strong governance builds trust in institutions, and this trust is essential when introducing the increases in monthly water fees that are often required to help the water utility break even. Hubert notes the commitment of water suppliers to raise fees with care, working with ADB to ask consumers what they are willing to pay for the service and conduct affordability studies to estimate the kinds of increases poor and marginalized customers could absorb.

In one remarkable account, Hubert describes the position of ethnic minorities in rural Vietnam who were legally not required to pay water fees. The responsible water service providers would not expand coverage to reach those communities because they would not be able to recover their costs, so the communities themselves made the case that they actually wanted to pay, knowing that this would make reliable water service possible.

Meanwhile, Hubert highlighted that full cost recovery by water service providers — while an essential management objective — can also represent a hazard to the public interest, insofar as it may remove the incentive to improve systems and expand coverage.

Rural Water Innovation

In the domain of innovation, Hubert pointed to research that Aquaya conducted as part of the Fund, examining the possibility of HueWACO assuming responsibility for rural water supply systems throughout Thua Thien Hue province, including the deployment of novel water treatment technologies (such as hollow-fiber ultrafiltration and in-line chlorination). This management change is an example of the kind of consolidation of multiple rural water supply systems that is now gaining credibility as a way to increase efficiencies, allowing for a cross-subsidy to support those systems for whom full cost recovery may continue to be a challenge. Vietnam’s 2021–2025 five year plan mandates its Ministry of Construction to integrate rural and urban water supply, in connection with the regulation of newly privatized large utilities.

Takeaway

Committed individual champions, securing the trust of influential civic organizations, supporting tariff reforms with reliable data on affordability and willingness-to-pay — all of these contributed to the success of ADB’s $1 billion water fund, and are lessons that can be tested in other settings. More broadly, however, widespread trust in institutions increased the ease with which these reforms could be implemented.

Supported by USAID.

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