Innovations in Private Sector Development – Lessons Learned – October 2018 - East Meets West | Evidence-based international development at scale

24 Oct 2018

News, Research | Viet Nam

Innovations in Private Sector Development – Lessons Learned – October 2018

Background

Despite significant improvements in rural water supply, Vietnam is still facing considerable challenges in “reaching the last mile”, providing the poorest quintile of the population with access to clean water and sanitation. Connection costs, technical and financial sustainability issues are among the reasons that explain the limited coverage and low quality services.

Global and local evidence shows that private sector can deliver efficient water supply service and are more adaptive to new technologies than other management modalities. However, legal conditions and preferential policies currently available on private enterprises are unclear or only partially implemented.

Innovations for Private Sector Development in Rural Water Supply (PSI) project has been designed and implemented with the focus on promoting engagement of the private sector in rural water supply services. While maximizing social welfare for households, the project supports the financial sustainability of private enterprises’ business operations. The results from PSI are used to advocate for regulatory reform and encourage the government buy-in to the value of the transparent bidding process and innovative financing mechanism.

National Learning Workshop in Vinh city, Nghe Province, October 15 2018

Launched in October 2016 in two provinces Son La and Ha Nam, Phase 1 of the PSI project has adopted a competitive fund approach, established to provide smart subsidies to private water enterprises. Built on the positive outcomes of Phase 1, the detail design of Phase 2 was approved by DFAT in early October 2017 and has been well underway with the involvement of An Giang and Nghe An provinces. The gains and challenges experienced in the past two years necessitated a national learning workshop, where lessons learned from the two phases would be shared among stakeholders and the implementation plan for the coming time was discussed.

Over-arching discussion questions included:

How to effectively transfer technological innovations in rural water supply?
What are the major challenges in involving private enterprises in water supply and what are the measures to address these challenges?
How to promote gender mainstreaming in and beyond the WASH project implementation?

Key Findings and Lessons Learned

As an outcome of the workshop discussion, the following lessons and findings are drawn:

There is no one-size-fits-all Rural water supply has its own characteristics and challenges that require different approaches.
WASH service in certain areas have proved highly efficient, and this necessitates adjustment in the policy framework to make required
As public financing is limited and unable to cover investments in public services and infrastructure, it is crucial to mobilize private enterprises and resources of private However, there remain numerous obstacles that hinder private sector from engaging in WASH service supply, including land and tax incentives, credit policies, low water tariff to name but a few.
Statistics show that rural households spend about 10-15% of their incomes on fundamental services like water and Furthermore, despite the absence of full cost recovery mechanisms and guidelines under Circular 75 implementation, PCERWASS and water enterprises in many provinces sustain steady growth. Therefore, it is not correct to conclude that WASH service cost is beyond households’ ability to pay, and water tariff is the major factor that determines the profitability. Rather, it is more of a problem of the management and investment within the sector.
The PSI project proves to be a great opportunity to demonstrate innovative approaches to funding mechanism, which have significantly enabled private enterprises’ involvement in rural water As noted that most private enterprises do not expect to receive direct investment from the government, but would like increased access to funding sources.
Instruments to measure gender outcomes under the project have not been sufficiently developed.

Overarching lessons learned summarized
Project success and Government Buy-in	Government buy-in is dependent on the project’s ability to demonstrate practical initiatives and successful demonstration of innovative approaches within the Vietnamese context.
Sector-wide advocacy needed for gender mainstreaming	Greater attention should be paid to gender mainstreaming and women empowerment, particularly women’s participation in local socio-economic planning, and women’s voices in decision-making. Mainstreaming gender and empowering women within the context of water supply elusive outcomes and require more expertise and advocacy from the wider sector.
Sustainability of technological innovations transfer	Sustainability of technological transfers from Australia to Vietnam is dependent on the ability to localize the technology to meet domestic needs. International experience and expertise need to be adapted to the practical conditions and be built on the track record of existing programs and lessons learned from projects in-country. Lessons learned should be experimented, documented, disseminated and taken into consideration in project planning.
Unresolved landownership are underlying issues and barriers to privatization	The privatization of PCERWASS Hau Giang failed to launch as there are no guidance for land valuation when the local residents reclaimed their land ownership. Disputes over land ownership among private water enterprises are issues that needs to be addressed, possibly by means of land incentives.
Practical and proactive measures such as water supply planning and zoning should be embedded in programme for long-term sustainability.	It is important to ensure long-term and sustainable engagement of the private sector in water supply through practical measures such as water supply planning and zoning to avoid conflicts and disputes among water supply enterprises. Output-based aid needs to be implemented with caution as some private enterprises only invest in households in favorable locations in order to get subsidy. Attention should also be paid to the sustainability of the intervention, including the role of local authorities in relation to the project outcomes to ensure sustainable operation of the water schemes.
No single investment criteria works	There cannot be a single set of criteria and standards applicable to all areas, mountainous and delta areas. Provinces, with better-developed criteria for investment, should be given priority in receiving support and subsidy
Tailoring water tariffs is necessary	The MoF Circular 75 only provides general guidance water tariff. Water tariff should be tailored for each region and scheme. Initial investment value should be taken into consideration when determining water tariff.

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