VZCZCXYZ0009
PP RUEHWEB

DE RUEHPF #1924/01 2961010
ZNR UUUUU ZZH
P 231010Z OCT 06
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 7502
INFO RUEHBK/AMEMBASSY BANGKOK 1893

UNCLAS PHNOM PENH 001924 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EAP/MLS, EAP/RSP, OES/PCI--SALZBERG AND BLAINE 
BANGKOK FOR REO-JIM WALLER 
STATE PLEASE PASS TO USAID FOR MILLER AND DEELY 
 
E.O. 12958:  N/A 
TAGS: ESTH SENV EWWT CB
SUBJECT:  CAMBODIA WATER AND SANITATION ASSESSMENT 
 
REF:  STATE 128229 
 
¶1.  Summary:  Over the last decade, the Phnom Penh Water Supply 
Authority (PPWSA) has become a commercially viable public enterprise 
regarded as a model across Southeast Asia.  Unfortunately, access to 
improved water supply in rural areas is severely limited and, 
throughout Cambodia, sanitation is a critical problem with a direct 
impact on environmental quality.  Promoting relatively small, 
decentralized sanitation systems in rural areas; using water 
revolving funds and "multi-tranche" funding to increase access to 
investment capital; and strengthening the regulatory and policy 
framework for rural water supply will all help to encourage the 
development of improved water and sanitation facilities.  End 
Summary. 
 
¶2.  This report, a response to reftel request for a review of 
Cambodia's water and sanitation needs and opportunities for 
strengthening U.S. engagement on these issues, is a collaborative 
effort between the Embassy in Phnom Penh, USAID/Cambodia and 
USAID/RDMA in Bangkok. 
 
Water and Sanitation Conditions in Cambodia 
------------------------------------------- 
 
¶3.  Access to improved water supply in Cambodia is among the lowest 
in the Asia.  According to UNICEF, only 34% of Cambodian households 
have access to improved drinking water and only 6% have household 
connections.  Urban residents have slightly better conditions with 
approximately 56% having access to improved water supply and 31% 
with household connections.  Only 29% of the rural population has 
access to improved water with only 1% of rural residents having 
household connections. 
 
¶4.  Improved sanitation coverage is similarly low in Cambodia with 
only 16% of the population having access.  Approximately 53% of 
urban residents have access to improved sanitation; however, only 8% 
of rural residents have access. 
 
¶5.  Water resources are generally adequate in Cambodia.  The Mekong 
and Tonle Sap Rivers provide substantial surface water resources 
utilized for fisheries, agriculture, industry and domestic supply. 
Total freshwater resources are estimated to be more than 35,000 
cubic meters per capita (nearly 6 times the regional average). 
Seasonal flooding is common in Cambodia and can be followed by 
periods of drought, particularly in southeastern and northwestern 
regions of the country.  Drought impacts are most significant to the 
agriculture sector which accounts for 94% of freshwater withdrawals; 
however, seasonal droughts can affect local domestic water supply. 
 
¶6.  The Department of Potable Water of the Ministry of Mines, 
Industry and Energy (MIME) has the primary responsibility for urban 
water supply in Cambodia's provincial cities.  Since the 1991 peace 
accord, the RGC has experimented with several different service 
delivery models for urban areas including private concessions.  By 
far the most successful service model is the Phnom Penh Water Supply 
Authority (PPWSA), a public enterprise with autonomous management 
and financial controls.  The Ministry of Rural Development (MRD) is 
responsible for rural water supply. 
 
¶7.  The responsibility for sanitation service in urban areas 
generally falls to the municipal government.  However, the Ministry 
of Public Works and Transportation (MPWT) plays an important and 
substantial role in the development of wastewater infrastructure, 
particularly centralized sewerage and wastewater treatment systems. 
The MPWT was the responsible government counterpart on recent Asian 
Development Bank (ADB) investments in wastewater infrastructure in 
Sihanoukville. 
 
Needs Assessment 
---------------- 
 
¶8.  With the successful reform of the PPWSA into a commercially 
viable, utility operation, the RGC has a demonstrated model for 
successful urban water service delivery.  Current government plans 
call for similar reform initiatives for Siem Reap, where financial 
autonomy, performance management techniques and operational 
transparency will be employed to achieve necessary service 
improvement and expansion.  The RGC further plans to enter into 
performance contracts with other provincial waterworks offering 
future financial autonomy as incentive for performance improvement. 
Donors including the World Bank and the Japanese International 
Cooperation Agency (JICA) are presently implementing capacity 
building projects to support further provincial waterworks reform. 
Additional support to these capacity building efforts could be 
coordinated to assure that both the functional (policy and 
operational) and personal leadership aspects of the PPWSA success 
are transferred to provincial counterparts. 
 
¶9.  The lack of a formal policy and regulatory environment governing 
provision of rural water supply has fostered the development of 
small-scale, private water supply vendors.  This market-driven 
service delivery model has resulted in incremental expansion of 
service to Cambodia's rural population.  Nevertheless, accessible, 
adequate water supply is still lacking in rural communities. 
Additional policy and regulatory activities should be undertaken to 
safeguard the rural public from over-pricing and ensure healthful 
service delivery standards are met.  Incentives for further rural 
water supply expansion should be considered to promote further 
private sector investment and the organization of community service 
providers, joint service councils, or other delivery organizations. 
Financial incentives to be considered may include the development of 
revolving funds which mobilize local finance for service delivery 
expansion.  Formal service agreements and concessions with private 
sector vendors could also be utilized to regulate and provide 
incentives for rural water service delivery. 
 
¶10.  Sanitation conditions in Cambodia must be considered a priority 
problem.  The vast majority of domestic wastewater is discharged to 
natural waterways and the environment without treatment, directly 
impacting inland and coastal fisheries important to the national 
economy.  The ADB has made recent investments in a wastewater 
treatment plant in Sihanoukville.  The European Commission has also 
funded construction of a wastewater treatment system in Battambang. 
These projects provide much needed treatment capacity, but have thus 
far addressed only a small percentage of treatment requirements.  A 
sustainable business model for provision of sanitation services has 
not yet been demonstrated in Cambodia.  Additional investments in 
decentralized treatment systems for priority sanitation issues and 
progress toward generating adequate revenue for sanitation system 
operation and maintenance are recommended to have immediate and 
sustainable impact on sanitation conditions. 
 
¶11.  Given the general lack of water and sanitation infrastructure 
throughout Cambodia, and especially in rural areas, meeting 
Millennium Development Goal targets will require substantial capital 
investment to complement sector reform initiatives.  Major 
development banks including the World Bank, ADB and the Japanese 
Bank for International Cooperation (JBIC) have provided grants and 
loan packages for water and sanitation in recent years.  These 
investments have targeted large projects in major provincial areas. 
Additional capital investment for secondary provincial cities and 
rural areas is required.  Different financing tools, including 
pooled financing mechanisms and municipal bonding should be 
considered to mobilize local financial capital for small to medium 
sized projects not covered by development bank loan packages. 
Additionally, these mechanisms could provide sustainable sources of 
capital financing for future service improvements and expansion. 
 
Current Activities 
------------------ 
 
¶12.  The RGC has taken important reform initiatives since 1991. With 
the support of World Bank, the Phnom Penh Water Supply Authority 
(PPWSA) was established in 1997.  The PPWSA has introduced automated 
systems for accounting management and billing, incorporated a 
profit-sharing system for employees, increased metering and fines 
for illegal connections and introduced innovative technology to 
reduce system leakages.  Given full financial autonomy and a reform 
agenda, the PPWSA has developed into one of the best models for 
urban water supply in all of Asia.  The PPWSA has successfully 
repaid all of its loans for infrastructure improvement early and 
currently borrows on the open market without need for sovereign 
guarantee. The Cambodian government has recently launched an 
initiative to implement a similar reform agenda with the Siem Reap 
waterworks.  Other provincial waterworks will be encouraged to 
reform through signature of management contracts with MIME outlining 
service delivery milestones.  Good performance will be rewarded with 
additional operational autonomy for the waterworks. 
 
¶13.  The donor community has played a significant role in achieving 
incremental improvements in water supply and sanitation coverage in 
Cambodia.  The World Bank has funded two major projects since 1998. 
From 1998 to 2004 the Cambodia Urban Water Supply Project was 
supported by a $31 million loan from the World Bank to improve 
infrastructure in Phnom Penh and Sihanoukville.  In addition to 
service expansion, the project supported a revolving fund for 
increasing connections to the poor and supported national policy 
development for both urban and rural water supply.  The Provincial 
and Peri-Urban Water and Sanitation Project is a follow-on program 
funded with a $19.9 million loan from the World Bank primarily to 
assist Phnom Penh and other provincial centers with extension of 
their management responsibility to peri-urban areas of the province. 
 This program is planned to continue through 2008 and utilizes 
output based aid (OBA) approaches for certain project elements and 
is intended to support policy reform on tariffs and subsidies and 
public-private partnerships.  The Water Supply and Sanitation 
Program (WSP) of the World Bank continues to operate in Cambodia 
supporting rural water supply policy implementation and awareness 
raising activities related to both water and sanitation. 
 
¶14.  The ADB has also supported development of the water and 
sanitation sector in Cambodia with various loan and grant packages 
to the RGC.  From 1997 to 2003, the Phnom Penh Water Supply and 
Drainage project was supported by a $18 million loan from the ADB 
and focused on master planning and infrastructure development.  An 
additional $18 million loan was issued to support the Rural Water 
Supply and Sanitation Project to provide both hardware and software 
support for improved water and sanitation in three provinces.  Most 
recently, in 2005, the ADB loaned $18 million for the Tonle Sap 
Rural Water Supply and Sanitation program to support improved water 
and sanitation in 5 provinces including Siem Reap. 
 
¶15.  JICA has taken a very active role in water sector capacity 
building.  From 2003 through 2006, JICA has implemented a capacity 
building program to provide operations and maintenance training to 
PPWSA staff and to establish a training system that can be accessed 
by provincial waterworks staff.  JICA is presently working with MIME 
to extend capacity building success with Phnom Penh to other 
provincial cities.  Initial focus will be on Siem Reap.  In 
addition, JICA has supported implementation of a water treatment 
system in Siem Reap and rural water supply infrastructure in Kampong 
Cham province.  JBIC is also presently considering the development 
of a wastewater master plan for Phnom Penh. 
 
¶16.  USAID has recently initiated activities in Cambodia under the 
Environmental Cooperation - Asia (ECO-Asia) Program.  This program 
provides technical support, small grant assistance and exchange 
support to water and sanitation service providers.  The program 
focuses assistance in five reform areas: 1) innovative models for 
expanding access to the poor, 2) increased access to innovative 
financing, 3) improved corporate governance and management by 
service providers, 4) increasing enabling conditions for water and 
sanitation services and 5) sustainable sanitation solutions. 
Specific interventions and activities in Cambodia are presently 
under consideration; however, initial discussions with program 
counterparts indicate that the ECO-Asia program will focus on 
sustainable sanitation in Phnom Penh and improved corporate 
governance in Siem Reap.  Additionally, PPWSA will serve as a mentor 
for the regional service provider twinning program which aims to 
catalyze service reform through facilitated programs and sustained 
relationships between Asian utilities or service providers. 
Finally, the ECO-Asia program will consider support to the 
development of a Cambodian Waterworks Association which would serve 
as a national platform for sharing experience and best practices and 
would feed into the Southeast Asia Water Utilities Network (SEAWUN) 
or similar regional association. 
 
USG Engagement 
-------------- 
 
¶17.  The PPWSA is a recognized model water service provider in Asia. 
 Achievements of the PPWSA can serve as the foundation for urban 
water service delivery reform across Cambodia.  Capacity building 
programs of the World Bank and JICA will help to replicate 
successful service delivery in Siem Reap and other provincial 
cities.  In coordination with these programs, additional USG support 
is recommended to support priority water service delivery issues not 
yet addressed including sustainable models for servicing the urban 
poor and extension of service to peri-urban areas.  Given adequate 
resources, USAID's ECO-Asia program is well-positioned to provide 
technical assistance to service provider reform and to facilitate 
twinning and mentoring programs between PPWSA and other provincial 
waterworks.  Additional support to the establishment of a Cambodia 
Waterworks Association is recommended in order to catalyze the water 
sector reform agenda, create a platform for professional exchange 
and best practice sharing and support water sector professional 
development and regional exchange. 
 
¶18.  Access to improved water supply in rural areas is very limited 
in Cambodia. Lack of government regulation and intervention in rural 
communities has fostered a private sector service model in many 
areas which can be used as the basis for service expansion. Further 
USG engagement should focus on supporting a policy and regulatory 
framework which promotes expansion of service by private sector 
suppliers while safeguarding residents from overpricing and poor 
service quality. Development of minimum service standards for 
service delivery and support to efforts to establish a regulatory 
body for water service providers is recommended. In addition, 
development and implementation of financing mechanisms, including 
water revolving funds, accessible to private water service providers 
is necessary to support capital investments in service expansions. 
 
¶19.  There is widespread need for addressing sanitation conditions 
in Cambodia.  However, sanitation system sustainability must be 
addressed prior to implementation.  Further engagement of the USG 
should focus on building business models for sanitation service 
delivery where sustainable revenue streams meet or exceed 
operational costs.  Small to medium-scale decentralized treatment 
approaches are effective in addressing priority community issues. 
These systems have the further advantage of being generally more 
manageable than larger centralized treatment plants in terms of 
financing and operations. Decentralized systems address the 
immediate need for treatment capacity in priority areas and help to 
build local capacity for sustainable operations of sanitation 
systems.  USAID's ECO-Asia program plans one sustainable sanitation 
pilot activity in Cambodia.  Additional USG engagement to extend the 
capacity and impact of participatory, community-based, decentralized 
sanitation solutions is recommended. 
 
¶20.  The ADB and other development lending agencies have experienced 
difficulty in providing small borrowers access to financing for 
small to medium sized investments (less than $5 million).  A 
notional idea to develop a "multi-tranche" financing mechanism has 
been raised by the ADB to allow smaller borrowers, meeting certain 
performance and credit-worthiness criteria to take small loans 
through a larger line of credit issued to the national government. 
In the case of Cambodia, the USG could assist the ADB in developing 
the lending criteria and framework for a multi-tranche financing 
mechanism for water and wastewater infrastructure development. 
Further support through a capacity building program should then be 
focused on helping Cambodian waterworks to achieve requisite 
criteria for borrowing via the multi-tranche financing mechanism. 
 
¶21.  All water and sanitation development investments by the USG 
should be performed within an integrated water resources management 
framework.  Economic growth and urbanization in Cambodia are 
increasing pressures on demand and affecting water quality. 
Individual activities should be designed and implemented with 
awareness of the wider impact on water resources management, 
including upstream and downstream needs and uses.  Special attention 
should be given to water conservation and demand-side management. 
 
MUSSOMELI