Cambodia Water Supply and Sanitation Acceleration Project (P178417) Supplementary Note on Climate Co-Benefits October 21, 2023 A. Purpose of the Supplementary Note 1. This supplementary note shall be read together with the Project Appraisal Document for the Cambodia Water Supply and Sanitation Acceleration Project and is intended to provide supplementary information on the estimated activity-level cost breakdown in the project to facilitate the assessment of the project’s climate co-benefits at the Board approval stage. B. Climate Change Vulnerability Context 2. Cambodia is highly exposed to rising climate change vulnerabilities, especially increases in the frequency and intensity of floods and droughts, affecting livelihoods and public health. Cambodia is prone to flood events in the wet season, with 80 percent of the country located within the Mekong River and Tonle Sap basins, and to droughts during the dry season. Climate change is worsening drought conditions with a rise in the number of days with high temperatures between 0.20°C and 0.23°C per decade. The number of hot days has increased by almost 46 days per year over the last century. Moreover, between 1987 and 2020, six major drought events affected over nine million Cambodians. In 2020, severe flooding affected 800,000 people, including 388,000 people in poor and vulnerable households, in 20 provinces. The increased occurrence of floods and droughts has led to increased vulnerability to waterborne diseases, primarily diarrheal disease, which is the second leading cause of death for children under five. Approximately 2.4 million people, about 15 percent of the population, are estimated as near poor and at risk of falling back into poverty due to economic shocks, natural hazards, and environmental degradation. 3. Cambodia has made good progress in increasing access to improved Water Supply and Sanitation (WSS) services, although achieving Sustainable Development Goal 6 (SDG 6) remains a challenge. Access to both improved water supply and improved sanitation reached almost 80 percent in 2022, up from 52 percent and 10 percent, respectively, in 2000. Open defecation declined from 87 percent in 2000 to 12 percent in 2022. Access to safely managed WSS services, which is defined under SDG 6, 1 however, remains low. In 2022, only 29 percent of the population had access to safely managed water supply, and about 37 percent had access to safely managed sanitation. While urban areas were close to achieving universal access to improved sanitation, which was 93 percent in 2022, the level of access to safely managed sanitation in urban areas was only 45 percent. Efforts to increase access and raise the level of service for WSS provision are both equally important to achieving the SDG 6 targets—universal access to safely managed WSS services by 2030. 4. The need to increase and expand Cambodia’s WSS services is aggra vated by climate challenges that affect the sustainability of water sources and the operation of WSS systems. Cambodia’s water resource endowment is above the global average, yet water availability is highly variable, both temporally and spatially, and water availability is expected to worsen with climate change. Cambodia already 1Under SDG 6, safely managed water services refer to access to improved water sources that are accessible on premises, available when needed, and free from contamination. Safely managed sanitation services refer to access improved sanitation where excreta is safely disposed of in-situ or treated off-site. experiences severe water reduction in the dry season, which lasts up to seven months, triggering competing demands from agriculture, the environment, industry, and water supply. Several water service providers face water source shortages for almost five months annually. Despite this critical situation, inter- ministerial coordination for water resource allocation is nearly absent; water allocation often happens on an ad hoc basis without being guided by a clear framework. Extreme weather, that is, intense floods and severe drought, exacerbated by climate change, poses increased risks to WSS infrastructure, potentially resulting in damaged sanitation systems, reduced dry weather flows affecting the operations and maintenance (O&M) of the systems, or flooding of sewer pumping stations. Moreover, declining water quality, which has been exacerbated by climate change, has increased water treatment costs. Achieving universal access to WSS depends upon closing the financing gap, adapting to climate change, and factoring in climate impacts on water source development and planning. 5. The selected provinces, Battambang, Pursat, Mondul Kiri, and Kandal, are vulnerable to floods and droughts. For the Battambang and Pursat Provinces and Ta Khmau Municipality of the Kandal Province, vulnerability to river and urban floods have been classified as high. Potentially damaging and life-threatening floods are expected to occur at least once every 10 years. With rising temperatures witnessed throughout the country, the project areas in the Battambang and Pursat Provinces and the Saen Monourom Municipality of the Mondul Kiri Province also face risks from extreme heat, which can lead to worsening droughts and an increase in demand for water. More than 40 percent of communes in the Battambang and Pursat Provinces and the Saen Monourom Municipality are classified as vulnerable to drought. C. Climate Change Aspects of the Project 6. Project Development Objectives (PDO) are to increase access to safely managed water supply and sanitation services in selected areas, strengthen institutions for water supply and sanitation service delivery, and in case of an eligible crisis or emergency, respond promptly and effectively to it. 7. The specific PDO-level indicators include: (a) People provided with access to safely managed water supply services in target water-scarce areas (Number, male/female); (b) People provided with access to safely managed sanitation services in target areas (Number, male/female); (c) Annual performance benchmarking of water service providers established (Text); (d) Increase in operational cash flow of supported public water utilities (Percentage); and (e) Level of operational costs of sanitation service in target municipalities covered by revenue collected from customers (Percentage). Indicators (a) and (b) measure the increase in access to safely managed WSS services, while indicators (c), (d) and (e) measure the institutional strengthening part of the PDO. 8. The project comprises three components. Component 1 focuses on increasing access to safely managed water supply services. Component 2 focuses on increasing access to safely managed sanitation services. Each component above will include activities to improve sector planning, strengthen institutional capacity, enhance financial sustainability and sustain operational management of the services. Component 3 is a zero-dollar component dedicated for responding to unexpected crises or emergencies. The detailed description of project components and activities and how the project activities contribute to climate change adaptation and mitigation can be found in the Project Appraisal Document. Table 1 provides an estimate of the project’s activity level cost breakdown. 9. An assessment of adaptation risks was conducted, and risk reduction measures are included in the project design. The main climate and disaster risks with a high level of inherent risk that will affect the project are those related to extreme heat, specifically prolonged drought events that may have an impact on the availability of water resources in the project areas and cause competition over water resources between various users. Another key climate risk hazard with a high level of risk, according to Think Hazard, is linked to an increase in erratic rainfall and recurrence of intense flooding events, which affect key water infrastructure and increase the incidence of waterborne diseases, leading to detrimental public health outcomes. The project design has factored in the above-mentioned climate and disaster risks through: (a) incorporating climate change aspects into the design of the water supply and sanitation (WSS) systems to enhance resilience to floods and droughts; (b) factoring climate risks in O&M to ensure that water supply is reliable and sustainable; and (c) collaborating with the proposed Cambodia Water Security Improvement Project (P176615) to address water source sustainability issues facing private water operators (PWOs). The project will also address sectoral issues by fostering close collaboration between the Ministry of Industry Science, Technology & Innovation and the Ministry of Water Resources Management and Meteorology to coordinate and plan for water source development. Such coordinated planning will factor in climate change impacts on water supply expansion and projected increased demand for piped water supply, as well as for other water uses, including for the environment, agriculture and industry, on a basin level. Through better cooperation, both ministries will address water demand and supply-related concern in light of climate change exacerbated water scarcity in the project areas. The residual risk of climate hazards having a material impact on the project is acceptable. 10. From the mitigation perspective, project activities, namely the expansion of water supply systems, optimization of operational performance, and the collection and treatment of wastewater, are universally aligned with the Paris Agreement’s mitigation goals. All water supply treatment plants and pumping stations supported under the project will rely on energy from the grid. The investment in wastewater collection and treatment plants will positively contribute to improving the local environment by reducing pollution in urban areas during flood events, through separation of wastewater from stormwater, and by reducing pollution in water bodies. TA will be provided to improve energy efficiency in WSS service providers and to keep non-revenue water low, which would contribute to Green House Gas (GHG) emissions reduction. The investments in water supply will also reduce emissions stemming from household-level pumping, boiling of water and reducing household reliance on tanker trucks. In this regard, the material risk of the project having a negative impact on Cambodia’s low-GHG emissions development pathways is low. 11. The net emissions of the project are estimated at -1,356,264 tCO2-eq over the 20-year life of the project investments, while the gross project emissions are estimated to be 345,828 tCO2-eq. On average, the project leads to a reduction in estimated net emissions of -67,813 tCO2-eq annually. Under Component 1, there is a significant decrease in emissions as beneficiaries move away from pumping water from wells, using tanker trucks and boiling water. The total project gross emissions for Component 1 are 36,394 tCO2- eq. Compared to the baseline, there is a reduction in net emissions of -1,361,723 tCO2-eq over the project lifetime or reduction in net annual average emissions of -68,086 tCO2-eq attributable to this component. The wastewater activities under Component 2 are, however, net emissive with the project gross emissions being 5,459 tCO2-eq, and the net average annual emissions being 273 tCO2-eq. Table 1. Cost estimate at activity level2 IDA financing total (US$, # Project Components millions) 1 Component 1: Province-wide water supply development 104.62 Subcomponent 1.1 Water Supply Expansion and Modernization of 85.41 1.1 Battambang, Pursat and Mondul Kiri Water Utilities Activity 1.1.1 Water supply infrastructure expansion 82.86 Activity 1.1.2 Optimization and modernization of provincial waterworks 2.55 Subcomponent 1.2 Water Supply System Development and Improvement in 16.41 Areas Outside Public Water Utilities in Battambang and Pursat provinces 1.2 Activity 1.2.1 Water supply improvement and expansion in existing PWO service areas 16.20 Activity 1.2.2 Mobilizing PWOs' water supply development in greenfield areas Activity 1.2.3 Enhanced and continuous technical backstopping to PWOs 0.21 Subcomponent 1.3 Institutional Strengthening, Capacity Building, and Project 2.80 1.3 Management Activity 1.3.1 Improving performance management by operationalizing and 0.22 rolling out the WSMS and limited technical audit Activity 1.3.2 Water supply regulation action plan 0.30 Activity 1.3.3 Water source development planning 0.07 Activity 1.3.4 Strengthening social accountability of provincial waterworks 0.27 Activity 1.3.5 Project management 1.94 2 Component 2: Provincial Municipality Sanitation Development 58.38 Subcomponent 2.1 Sanitation System Development in Battambang, Pursat, 56.55 2.1 and Ta Khmau Municipalities Activity 2.1.1 Sanitation planning 0.13 Activity 2.1.2 Wastewater infrastructure development 55.36 Activity 2.1.3 Institutional development and capacity for operational 1.06 management of sanitation systems Subcomponent 2.2 Sanitation Institutional Strengthening and Project 1.83 2.2 Management Activity 2.2.1 CWIS framework 0.08 Activity 2.2.2 Project Management 1.75 3 Component 3: Contingent Emergency Response 0.00 Total 163.00 2 This activity-level cost estimate does not mean to set the ceiling of each activity. The breakdown provided is to facilitate the assessment of climate co-benefits. Information related to financing categories and allocations across components is in the Financing Agreement between the Kingdom of Cambodia and the International Development Association.