Aide Memoire _ March 2025 Lao PDR: Scaling-up Water Supply, Sanitation and Hygiene (P164901) Implementation Support Mission March 11 – 19, 2025 Aide Memoire I. INTRODUCTION 1. An Implementation Support Mission (the Mission) for the Scaling-up Water Supply, Sanitation and Hygiene (SWSSH) Project (the Project) took place from March 11 to 19, 2025. This Aide Memoire (AM) summarizes the Mission’s findings on the status of project implementation progress, as well as the agreements reached. The AM was discussed at the wrap-up meeting on March 19, 2025 with the implementing agencies that was chaired by Mr. Oun Xayavongkaisone, Deputy Director General, Department of Water Supply (DWS), Ministry of Public Works and Transport (MPWT) and Dr. Viengkhan Phixay, Deputy Director General, Department of Hygiene and Health Promotion (DHHP), Ministry of Health (MOH). 2. The World Bank (WB) team would like to thank the relevant officials of the MPWT, MOH, Ministry of Education and Sports (MOES), and staff from Project Management Unit (PMU) at MPWT and Component Management Unit (CMU) at MOH, and other Government counterparts at the central, provincial and district levels for their active participation and cooperation during the Mission. A detailed list of officials and project consultants who took part in the Mission along with the composition of the WB team is provided in Annex 1. II. PROJECT DATA AND RATINGS Table 1: Key Project Data and Ratings Project Data US$ (millions) Original Project Amount SDR18 million, equivalent to US$25 million at signing Total Disbursement as of March 31, 2025 US11.6 (48 percent) Total Commitment US$20.5 million (85 percent) Original Closing Date March 31, 2024 Revised Closing Date March 31, 2026 Project Ratings Previous Current1 Project Development Moderately Satisfactory Moderately Satisfactory Objective (PDO) Implementation Progress (IP) Moderately Satisfactory Moderately Satisfactory Component 1 Moderately Satisfactory Moderately Satisfactory Component 2 Moderately Satisfactory Moderately Satisfactory Component 3 Moderately Satisfactory Moderately Satisfactory Component 4 Satisfactory Satisfactory Project Management Moderately Unsatisfactory Moderately Unsatisfactory Procurement Moderately Satisfactory Satisfactory Financial Management Moderately Unsatisfactory Moderately Unsatisfactory Overall Safeguards Moderately Unsatisfactory Moderately Satisfactory M&E Moderately Satisfactory Moderately Satisfactory 1 To be reviewed and approved by World Bank management in the next Implementation Status Report (ISR). 1 3. Progress has been made towards the agreed actions from the last mission in November 2024. Reported disbursements under the Project stood at 48 percent as of close of the Mission, with a new advance of around US$3 million to the Designated Account (DA) to be processed in late April. With the additional advance, the project's disbursement rate will improve to around 60 percent. All water supply works packages, totaling US$11.7 million, have been signed, bringing the cumulative contract commitment to around 85 percent. Construction has started and is in progress. The water supply (WS) sub-project in La and Namor Districts, Oudomxay Province, is about 50 percent complete, with construction continuing in other provinces. The completion of two WS subprojects in Oudomxay is anticipated by August 2025, with the majority of sub-projects expected to be completed by the end of 2025 to early 2026. The results are expecting to be observed from August 2025 onward. The recruitment of a construction supervision firm has been finalized, and the firm has been onboard since the end of January 2025. Behavior change communication activities are ongoing. Orientation for 100 Village Facilitators (VFs) in two districts of Oudomxay and four districts of Phongsaly was completed between mid-January and end-February 2025. The required safeguards documents for all WS sub-projects have been approved, albeit with significant delays. Although progress has been observed towards key milestones for improving project performance and completing agreed actions from the last mission (see Table 3), the Mission noted that the implementation of these key actions was behind the agreed timeline, particularly related to the implementation of Financial Management (FM) actions and the simplification of the internal review process within DWS. III. IMPLEMENTATION PROGRESS AND KEY FINDINGS Component 1 – Delivery of Infrastructure and Sustainability of Water Supply and Sanitation 4. All works contracts have been procured, transitioning this component from the procurement phase to the construction and contract management phase. The civil work progress in Oudomxay, particularly for the Nam Papa project in the La and Namor Districts, has reported around 50 percent completion as of March 2025. Initial delays in implementing this component were attributed to insufficient construction supervision, inadequate labor mobilization by contractors, and delays in Unexplored Ordnance (UXO) clearance. As a result, physical progress of all civil works contracts is significantly behind the planned schedule. To date, UXO clearances have been finalized, and a construction supervision consulting firm (CS) has been engaged and is currently operational. 5. Having visited the sites for the Nam Papa project in the La and Namor Districts, the WB team raised concerns about the quality of construction. The sand delivered on-site did not comply with specifications, being too fine and containing too much soil. Additionally, reinforcement works were not properly conducted. The temporary site engineer certified some works before the construction supervision engineer was on board. It was agreed that some of these works require rectification by the CS and PMU. 6. Contract supervision needs improvement. As the Project is scheduled to conclude on March 31, 2026, contractors are obligated to revise and submit their work plans to the CS for review and approval. The CS will monitor the contractors in accordance with these plans. It is imperative that the contractor's work plan is both realistic and feasible; any inadequate plans should be returned by the CS for revision. Upon completion of the review of the contractor's work plans, the CS is required to develop its own plan and submit it to the PMU for approval. The PMU will supervise the CS based on this plan. Any variation orders (VOs) must undergo 2 CS review and approval prior to execution. Significant design changes within a VO (e.g., technical, cost, safeguards) necessitate prior review by the WB task team. 7. Roles and responsibilities should be clearly defined. Expediting project implementation requires a proper balance of risk and efficiency. While CS supervises contractors, it does not mean that PMU has delegated all its roles and responsibilities. Instead, PMU needs to oversee CS by endorsing its certifications on key construction works and has the authority to intervene or override if necessary. Any damage caused during construction will ultimately be the responsibility of PMU (as an Employer); CS only assumes limited liabilities as stipulated in its contract. The WB team suggested that, in addition to the CS’s contract, PMU should work with CS to clearly define the roles and responsibilities of both parties in construction management and document them. 8. In preparing the utility's business plan, comprehensive discussions have been conducted regarding the overall scope and service agreement. Specific plans for each sub-project will be developed and subsequently integrated into the provincial plan. The consultant has been onboarded, and consultation meetings with provincial-level departments and utilities took place in January 2025. These business plans are for newly constructed WS systems aimed at improving service delivery. The WB’s Utility of Future (UOF) program has been introduced and will be implemented in Oudomxay Province to enhance provincial Nam Papa’s efforts in ensuring sustainable and reliable water services. Component 2 - Sustainability of Community Water Supply, Sanitation and Hygiene 9. Progress has been observed on the implementation of Social and Behavior Change Communication (SBCC) activities. A field guide has been prepared for the VFs engaged by the PMU, who will receive a monthly incentive of 200,000 kip (approximately US$9.5), consistent with other convergence projects. The VF pool consists of about 206 members distributed across 116 project villages. Orientation for 100 VFs in two districts of Oudomxay and four districts of Phongsaly was completed between mid-January and end-February 2025. They have been trained in the use of the field guide, SBCC support materials, reporting forms, and procedures, as per their Terms of Reference (ToRs). As part of the orientation, trainees also conducted fieldwork. Orientation for the remaining two provinces is scheduled for May 2025. Reporting from the field using the reporting forms have commenced in March, and the SBCC consultant will conduct a concurrent verification exercise. Preliminary fieldwork includes community consultations and household visits. Additionally, on the SBCC front, early M&E findings from the baseline regarding types of household toilets and hygiene behavior indicate that more emphasis will be placed on sanitation and hygiene, with corresponding updates made to the VF field guide. The Mission has emphasized to PMU and CMU the necessity of rigorous monitoring and verification, simplification of reporting procedures, and timely release of full payments to the VF pool. 10. The baseline survey for the three provinces of Oudomxay and Houaphan commenced last year, encompassing four levels: villages, households, health centers, and schools. However, the survey only started in Phongsaly in March, resulting in approximately half of the survey being completed. The Mission has strongly recommended that the financial reasons causing the delay be addressed immediately to ensure the survey is completed prior to the Lao New Year break. Meanwhile, the PMU has initiated the data quality check and analysis, which has revealed several discrepancies now being addressed through comparison and cross-referencing. While many villages have been officially declared as open defecation free (ODF), observations indicate that actual usage of sanitation facilities is lower than expected. To address this issue, 3 efforts will be made to increase demand for improved sanitation facilities at the household level. Fiduciary 11. The Mission observed that the financial management (FM) of the project continues to be moderately unsatisfactory, with minimal progress noted over the past six months. Three critical FM actions require immediate attention from the PMU: (1) The IFRs have consistently been submitted past the required deadlines [Currently, the IFRs for the PMU have not been submitted to the WB]; (2) The authorization process at the PMU is inefficient and ineffective, involving overlapping reviews and missing key controls; and (3) There is a potential shortage of FM staffing after the project’s closing date. The key actions required are: (1) The PMU must submit the IFRs to the WB as soon as possible; (2) The authorization process at the PMU should be streamlined and simplified by April 30, 2025; and (3) The FM staffing plan for the period after the project closing date should be sent to the WB by May 31, 2025. Please refer to Annex 3 for further details on these and other FM issues. Procurement 12. Procurement performance has been upgraded to Satisfactory following the signing of all water supply packages. However, three civil works contracts have not yet been uploaded in STEP, resulting in three red flags showing in the system. The PMU explained that the contractors have not yet submitted the Performance Securities (PS). The Mission emphasized to the PMU that the PS must be submitted by the awarded firm within the specified days mentioned in the Notification for Award before contract signing. PMU is requested to immediately send a written follow-up to the contractors to submit the PSs within the next two weeks (mid-April 2025). It was also informed that some civil works contracts require an extension of the construction period, but the amendments have not yet been signed. PMU is reminded to strictly follow the requirements and provisions outlined in the bidding document and contract. Since all procurement activities have been completed, the PMU should focus on Contract Management. All milestones of each contract must be closely monitored and followed up in writing in a timely manner. The PMU will prepare the Contract Monitoring Table and share it with the WB for close monitoring. The Mission also reminded the PMU that some completed contracts in STEP have not yet had their status changed from 'signed' to 'complete'. The Mission noted that the Project Director has been assigned to handle the project's procurement and contract management activities as of Feb. 21, 2025 with one Procurement Assistant consultant. Safeguards 13. The implementation performance of environmental and social safeguards is currently rated as Moderately Satisfactory. The Environmental and Social Management Plans (ESMPs) for the Oudomxay, Xiengkhouang, and Phongsaly Nam Papa subprojects received approval from the WB prior to the mission. However, the revised ESMP for Houaphan was only submitted during the mission and received approval from the WB in early April 2025. The UXO survey is complete for all provinces, and certificate from the National Regulatory Authority (NRA) received in April 2025. Although works contracts have been signed, the development of the Contractor’s Environmental and Social Management Plans (C-ESMP) has experienced delays due to the limited capacity of contractors. To date, only the C-ESMP for Oudomxay has been approved. During the mission, the C-ESMP template was simplified and will be shared with contractors. 4 14. The Project’s Environmental and Social consultants are encouraged to provide closer support to expedite the finalization of the Contractor’s Environmental and Social Management Plans (C-ESMPs). Trainings on C-ESMP, Environmental and Social Code of Practice (ESCOP), and Environmental, Social, Health, and Safety (ESHS) standards were conducted for the Project Implementation Units (PIUs) and contractors. However, the submission of monthly ESHS reports has been inconsistent, with only one report submitted for December 2024. It was agreed that moving forward, the ESHS report will be integrated into the CS monthly monitoring report. It was also reminded that the safeguard implementation bi- annual report covering Jan-Jun 2025 should be submitted by end of July 2025. 15. As part of the mission, a field visit was conducted to La District and Namor District in Oudomxay Province. The visit noted progress in safeguard capacity building, particularly in ESHS for contractor workers. The Mission suggested continuing these efforts, as more workers are expected to be recruited in the coming months to expedite construction activities. However, further strengthening is required in the implementation of ESMPs, especially regarding soil erosion issues at both sites. Additionally, it was requested that the steepness of access road slopes be verified against the technical design to ensure road safety. The Mission also recommended that the C-ESMP being finalized for the La District Water Treatment Plant’s access road, include mitigation measures related to (i) the already relocated six rice huts, and (ii) restoring access to the remaining four rice huts by the access roadside. It is also important to explore and implement prevention measures to prevent adverse social impacts of soil erosion that could restrict access to rice huts in La District site and downhill creek in Namor District. The WB has approved the Abbreviated Resettlement Action Plan (ARAP) for water supply sub-projects in Phongsaly. However, the ARAP implementation report still needs to be prepared and submitted. Additionally, the four outstanding Grievance Redress Mechanism (GRM) complaints require follow-up, and their resolutions should be recorded in the GRM monitoring system. IV. NEXT STEPS AND AGREED ACTIONS 16. Key actions have been agreed upon and will be monitored during monthly progress meetings involving both PMU and CMU from April 2025 until the implementation support mission in August 2025. The first check-in meeting was held on April 9, 2025, and updates have been recorded in the AM and agreed actions table. Table 2: Summary of Agreed Actions Actions Responsible Due Date Component 1 1. CS, local PIUs (e.g., temporary site engineer) and PMU/PIUs, April 23, 20252 contractors to identify defects of priorly certified CS/Contractors works for rectification 2 Rectification was done by the CS, and the report is expected by April 23, 2025. 5 Actions Responsible Due Date 2. CS submit work plan to PMU for review and Contractor March 31, 2025 approval [Completed] 3. PMU submit work plan to WB for technical review CS April 25, 2025 4. Sharing an update organization chart identifying CS/PMU April 25, 2025 roles and responsibilities between PMU and CS with the WB 5. Complete the field baseline data collection PMU May 15, 2025 Component 2 6. VFs Training in Houaphan province CMU May 5, 2025 7. VFs Training in Xiengkhouang province CMU May 19, 2025 8. WASH in School trainings with MOES in CMU June 27, 2025 Oudomxay and Phongsaly 9. WASH FIT for HCs CMU May 30, 2025 10. Ensure timely release of full payments to the VF PMU Immediately pool Procurement 11. Follow up on the pending performance securities PMU Immediately, and 12. (PSs) from the contractors not later than April 30, 20253 13. Update contract monitoring table including a PMU April 11, 2025 physical and payment status of each contract [Complete] 14. Upload and update the procurement status in STEP PMU April 30, 2025 15. Safeguards 16. Submit C-ESMP for Oudomxay including the PMU Immediately mitigation measures on restoring access to the 4 [Complete] rice huts, relocation of the 6 rice huts, and soil erosion 17. Submit C-ESMPs for Xiengkhouang and Phongsaly PMU April 15, 2025 18. Identify and confirm the site for Houaphan sub- PMU Immediately project [Completed] 19. Submit ESMP, including ARAP for Houaphan PMU [Completed] 20. Submit C-ESMPs for Houaphan PMU April 30, 2025 21. Address risk of soil erosion at the access road PMU April 30, 2025 and unsteady steep slope near the Water Supply Office in La and Namor District in Oudomxay, and for other sites 22. Share the UXO survey certificate PMU April 30, 2025 [Completed] 23. Submit ARAP Implementation Report PMU April 30, 2025 for Phongsaly 3 PSs has been received for Xiengkhouang sub-project. 6 Actions Responsible Due Date Financial Management 24. IFRs • Submit the IFRs for the last six months of • PMU • Immediately 2024 to the Bank • Submit the IFRs for the first six months of • PMU and • August 14, 2025 to the Bank CMU 2025 25. Submit the audited financial statements for the PMU June 30, 2025 year ending December 31, 2024 to the Bank 26. Streamline and simplify the authorization PMU April 30, 2025 process at the PMU 27. Submit the FM staffing plan for the post-closing PMU and CMU May 31, 2025 period to the Bank 28. Ensure the T-soft Accounting Software runs PMU June 30, 2025 properly 29. Reimburse all incurred expenses to the provinces PMU April 30, 2025 30. Transfer provincial staff salaries on a monthly basis PMU Starting from April directly from PMU’s Operating Account 2025 31. Revise and submit the process for provincial staff PMU April 30, 2025 salary transfers to the Bank 32. Contract management PMU • Improve contract management and ensure • Immediately payments align with contract terms • Review all construction contract payments for proper retentions • Immediately • Deduct overpaid amounts from future payments or seek refunds • April 30, 2025 33. Establish and add procedures for maintaining a PMU April 30, 2025 logbook for project cars Table 3: Status of Agreements from the previous AM Milestones for improving project Responsible Due Date Status performance 1. Submit a revised ESMPs for Houaphan, PMU November 30, [Completed] Phongsaly, and Xiengkhouang provinces for 2024 the WB’s review 2. Sign contract for Nam Papa Soum Son PMU [Completed] packages • January 31, • Oudomxay, Phongsaly and 2025 Xiengkhouang • February 28, • Houaphan 2025 3. Sign contract for construction supervision PMU January 31, [Completed] firm 2025 4. Reduce steps in the department internal PMU Immediately [Not yet done] review process aiming for approval and payment processing time to be within agreed 7 timeframe of 4 weeks for all payments Actions Responsible Due Date Status Procurement 1 Signing contract for three Nam Papa Soum PMU Jan 31, 2025 [Completed] Son (Oudomxay, Phongsaly, Xiengkhouang) 2 Signing contract for Houaphan Nam Papa PMU Feb 28, 2025 [Completed] Soum Son 3 Signing contract for construction PMU Jan 31, 2025 [Completed] supervision firm 4 Signing contracts for the remaining PMU Nov 30, 20244 [Completed] individual consultants Safeguards 5 [For Oudomxay] [Completed] • Submission of revised C-ESMP PMU • Nov 30, • Improve site arrangements 2024 • Submission of monthly ESHS • Nov 30, monitoring reports 2024 • By the 10th day of the following calendar month 6 [For Phongsaly, Xiengkhouang and [Completed] – Houaphan] PMU By Dec 2024 all ESMPs • Submission of revised three remaining approved. ESMPs (including RAP for required subprojects) Pending C- • Finalize C-ESMPS based on the ESMPs for approved ESMPs Phongsaly, Xiengkhouang and Houaphan) 7 Training report including details of PMU Nov 30, 2024 [Completed] handover of GRM poster, logbook and feedback report form to village committee 8 Provide documentation for land ownership PMU Nov 30, 2024 [Completed] and percentage of loss for all four affected households in Phongsaly to ensure that land donation is in line with the WB requirements for voluntary land donation. 10 Complete the UXO clearance (with PMU Dec 31, 2024 Pending certificates issued by NRA) receiving certification from NRA Financial Management 11 Complete the extension of the auditor’s PMU/CMU Dec 15, 2024 [Completed] contract 12 Submit WA to document expenditures paid PMU/CMU Dec 15, 2024 [Completed] (covering the period up to August 2024) 4 Contracts for FM, Social Safeguards and SBCC consultants have been signed on December 5, 2024. 8 Actions Responsible Due Date Status 13 Submit revised FM manual to include PMU/CMU Nov 30, 2024 Not yet done strengthened internal controls to the WB for review and approval 14 Complete the accounting entries for PMU PMU/CMU Dec 31, 2024 Not yet done and in all four provinces to be up to date. 15 Reduce steps in the department internal PMU Immediately Not yet done review process aiming for approval and payment processing time to be within agreed timeframe of 4 weeks for all payments 16 Follow-up for timely clearance of PMU Immediately [Completed] outstanding advances to be in accordance with the FM manual policies and procedures 17 Maintain accurate monitoring of contracts PMU Immediately [Completed] and commitments 18 Submit IFR for period ending December 31, PMU/CMU Feb 14, 2025 Pending with 2024, to the WB immediate actions Other activities 19 Consultation with relevant authorities on the PMU, PIUs Dec 31, 2024 [Completed] scope of corporate plan for the Nam Papa and and Nam Papa Soum Sone Provincial Nam Papa 20 Conduct training of VFs CMU/PMU By end-May, [Completed] 2025 21 Baseline survey data collection completed PMU April 10, 2025 [Partially Completed] Annexes: Annex 1: List of officials met and composition of WB team Annex 2: Status of key civil works packages and construction timeline Annex 3: FM Findings and Recommendations Annex 4: Results framework 9