Tanzania - Urban Water Supply Project

Docuaent of The World Bank FOR OFFICIAL USE ONLY Report No. 10699 PROJECT COMPLETION REPORT TANZANIA URBAN WATER SUPPLY PROJECT (LOAN 1354-TA/CREDIT 1271-TA) JUNE 12, 1992 0 \ Infrastructure Operations Division Southern Africa Department Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit s Tanzanian Shilling (TSh) and Tanzanian Cents 1 TSh - 100 Tanzanian Cents Exchange Rate at Appraisal USS 1.00 - TSh 8.30 SDR 1.00 - TSh 9.66 Exchange Rate (December 1983) s US$ 1.00 - TSh 12.00 Exchange Rate at Completion s USS 1.00 - TSh 8.00 MEASURES AND EQUIVALENTS 1 meter (m) s 3.28 feet (ft) 1 millimeter (mm) s 0.039 inch (in) 1 kilometer (km) s 0.62 mile (mi) 1 square kilometer (km2) s 0.386 square mile (mi2) 1 cubic meter (i8) s 35.3 cubic feet (fta) 1 liter (1) s 0.26 US gallons (gal) lcd s liters per capita per day ABBREVIATIONS CIDA Canadian International Development Agency MWEM s Ministry of Water and Energy and Mineralsl/ NUWA s National Urban Water Authority RDD s Regional Development Director RWD s Regional Water Department RWE s Regional Water Engineer TANESCO s Tanzania Electric Supply Company Limited WRI Water Resources Institute FISCAL YEAR Government of Tanzania July 1 - June 30 I/From 1987 renamed Ministry of Water Development.  FOR OMCIAL USE ONLY THE WORLD BANK Washington, D.C 20433 U.S.A. ce of Direoctx enral peratnons Ev.4uation June 12, 1992 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Tanzania Urban Water Supply Project (Loan 1345-TA/Credit 1271-TA) Attached, for information, is a copy of a report entitled "Project Completion Report on Tanzania Urban Water Supply Project (Loan 1345- TA/Credit 1271-TA)" prepared by the Africa Regional office. No audit of this project has been made by the Operations Evaluation Department at this time. Attachment This document has a restricted distribution and may be used by recipients only in the performtance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FOR OMCIAL USE ONLY !!&Q2LqZ-0MPLET1ON UMP-T TANZANIA URBAN WJATER SUPPLY PROJECT (LOAN 1354-TA/GREDIT 1271-TA) TABLE OF CONTENTS PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EVALtUATION SUllMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . ii PART I. PROJECT REVIEW PaCK BOKD'S PERSPECTIVE . . . . . . . . . . . . 1 Project Identity . . . * . * . * . * * . . . . . . . . . . . 1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Project Objectives and Description . . . . . . . . . . . . . . . . 3 Project Desi3n and Organization .. .............. .... 5 Project Implementation .... . . . ............ .. . 5 Project Results ... .. . . . . . 8 Project Sustainability .... . . . ........... .9.. . 9 Bank Performance . . . . . . . . . . . . . . . . . . . . . . . . . 10 Borrower Performance . .. ....... . . . . . . . . . . . . 11 Consulting Services . . . . . . . . . 9 9 9 .9. 9. . 9. 9. . 9 . 9 . 12 Project Documentation and Data . ................ . 12 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . . . ... 13 PARTIII. ST&TISTICAL IPRM&TION .......................... . . 14 Related Bank Loans and/or Credits . . . . . . . . . .. . . . . . 15 Project Timetable . . . . . . . . . . . . . . . . . . . . . . . . 16 Cumulative Estimated and Actual Disbursements . . . . . . . . . . . 17 Project Costs and Financing .. . . . . . . . . . . . . . . . . . 18 Project Results . . . . .9 . .99. 9.9...9.9.. 9 . * * 19 Status of Covenants . . . . . . . . . . . . . . . . . . . . . 20 Use of Bank Resources ourc................... ... . 21 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  PROJECT COMPLETION REPORT TANZAN A URBAN WATER SUPPLY PROJECT (LOAN 1354-TA/CREDIT 1271-TA) PREFACE 1. This is the Project Completion Report (PCR) for the Urban Water Supply Project, for which Loan 1354-TA (US $15 million) was approved and declared effective on December 23, 1977 and March 2, 1978 respectively. A supplemental IDA Credit (1271-TA) in the amount of SDR 3.6 million and a grant from the Canadian International Development Agency (CIDA) for US $ 3.2 million (Can $ 3.8 million) administered by the Bank, were approved to help complete the project. The IDA credit was approved on June 24, 1982 and became effective on June 14, 1983, and the CIDA grant became effective on June 14, 1984. Both the Bank loan and IDA credit were fully disbursed on December 30, 1984. The CIDA grant was fully disbursed on February 28, 1985. The Closing Date of the project was extended several times from June 30, 1981 to February 28, 1985. 2. This PCR was prepared by tLe Infrastructure Operations Division of the Southern Africa Department (Preface, Evaluation Summary, P-rts I and III). On August 20, 1991 the Bank sent the Borrower Parts I and II1 with the request to prepare Part II by November 20, 1991, but after two reminders no reply was received. Comments from the co-financier, the Canadian International Development Agency (CIDA), have been incorporated into the report. 3. Preparation of this PCR was based, inter alia, on the Staff Appraisal Report, the Lo,9n and Development Credit Agreemerts; supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.  ii PROJECT COMPLETION REPORT TANZANlIA URBAN WATPR SUPPLY PROJECT 'LOAN 1354-TA/CREDIT 1271-TA) EVALUATION SUMMARY Project Objectives 1. This Urban Water Supply Project marked the Bank's first major contribution towards achieving the Government's goals in the urban water sub-sector. The project was to be implemented over 5 years and sought to develop the production and distribution capacity of the water supply system for the town of Morogoro to make up for deficits in demand and to meet future demand up to 1986. 2. It also aimed to improve management and technical capabilities of the executing agency and the ministry responsible for the sector - the Ministry of Water, Energy and Minerals (MWEM). 3. Major project components included: the construction of the Hindu Dim, a 1650 m long, 12 m high dam with a 10 million m8 capacity; construction of production facilities; and provision of management advisory services to MWEM in technical, financial and training areas. Implementation Experience 4. Project implementation was problematic with some components - engineering of the dam and civil works on production facilities - experiencing delays and cost overruns. There was a need for supplemental financing to complete the construction of the main civil works component - the Mindu Dam. An IDA Credit (US $4.0 million) and a CIDA Grant (US $3.2 million) were approved for this purpose.  - iii - 5. The initial contractor on the 9onstruction of the dam experienced problems n th delays in the procurement of essential equipment and maintaining the nccessary level of techzvical staff on the site which led to an overall unsatisfactory performance. MWEM terminatud this contract in August 1981 and re- Rwarded it to the bidder evaluateo second lowest at the time of original tendering. In the interim, a contingency pumping system was set up providing raw water from the Ngerengere River, while dam completion was underway. 6. The replacement contractor faced different problems due mainly to the economic situation in the country at the time. As a result, the dam was completed 49 months behind schedule and at 238Z above the cost estimated at appraisal. 7. The contract for civil works and training for the Water Resources Institute (WRI), the organizatior responsible for the training of water system technicians was awarded in November 1980 but canceled a month later and its funds diverted towards completion of the Mindu Dam. 8. Attempts under the project to develop a commercially viable organization to oversee the activities of the urban water sub-Lector were not successful. The plan to establish an Urban Water Supply Fund was, after protracted discussior.s among various government agencies, set aside in favor of the creation of the National Urban Water Authority (NUWA) parastatal with initial responsibility for the Dar-es-Salaam system and with the ultimate aim of controlling all urban water supply systems. 9. The Borrower also did not comply with the covenant in the Loan Agreement covering the examination and review of water tariffs. Expected tariff increases did not take place and upon re-examuination of the issue in 1980, the Government decided that rates s.._'ld be based on a nationwide study determining actual production and distribution costs of treated water in urban areas. The final report of this study was submitted to MWEM in February 1985 who, based on the findings, recommended that Government implement an immediate 10O increase in tariffs. This recommendation was not implemented. 10. The Closing Date of the project was extended several times from June 30, 1981 to February 28, 1985 to covdr the completion of dam construction. Results 11. The project was partially successful in meeting its objective of expanding the water supply in Morogoro. Br mid-June 1985, all the components of the new system (except the Mindu Dam) tere in place and water production was on the increase. 12. The financial progress of the project could not be successfully monitored as audited accounts for the project were not submitted to the Bank despite repeated requests. A review of preliminary financial statements showed them to be incomplete in the area of foreign exchange expenditure.  - iv - 13. The impact of the project on the institutional organization of the sub- sectGc was minimal as at completion, a functioning, viable organization with complete control over sector activities did not exist. Sustainabilitv 14. The sustainability of the project depends on the urban water supply sub- sector becoming self- _.nancing and well-managed in a timely fashion. Both these conditions cannot be achieved without a realistic tariff system that will ensure cost recov- 7 and proper maintenance. Thus, it is doubtful that the results of this project will be sustainable over the long term. 15. Also, with the physical components of the project in place and the system functional, an effective institutional framework for their utilization is essential for any benefits of this project to be sustained. Thus, the strengthening of NUWA in terms of re-examining the exisJing management system with a view to setting clear goals, achieving autonomy of action on commercial lines, retaining competent technical staff and managing its financial resources efficiently is imperative. Findings and Lessons Learned 16. The main lessons from implementation of the Urban Water Supply Project are: - the importance of accurate cost estimates and projections made at appraisal; -the importance of an autonomous institution, well organized and competently staffed in the areas of management, technical and financial operations to the smooth operation of water supply systems; -the need for a comprehensive and realistic tariff structure reflecting the full costs of provision of water to consumers in order to generate the necessary for th:e operation and maintenance of water supply systems; and -the need to adhere to strict pre-qualification procedures and to establish systems that allow close monitoring of contractors and provide timely warning of potential problems; and -the need for the Bank to exercise its sanctions under the Agreements if Borrower'l commitment is lacking.  PROJECT COMPLETION REPORT TANZANIA URBAN WATER SUPPLY PROJECT (LOAN 1354-TA/CREDIT 1271-TA) PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity Project Name Urban Water Supply Project (Morogoro) Loan/Credit Nos. : 1354-TA & 1271-TA RVP Unit Southern Africa Department, Infrastructure OperE-. .ons Division Country Tanzania Sector Infrastructure Sub-sector : Water and Sanitation 2. Background 2.1 Tanzania's long-term policies in the water supply sub-sector aim at having all urban water supplies eventually operating on a self-financing basis. The intention is that urban consumers with private connections should pay the full economic cost of water with tariffs being sufficient to cover capital, operating and maintenance costs. In keeping with national policy water supplies in rural areas - ranging from dug wells with no pipes to piped systems with public standpipes - are provided free of charge by the Government. 2.2 Presently, funds for capital and recurrent expenditures are obtained from Treasury through budgetary appropriations and are channelled to the regions via the Prime Minister's Office and the Regional Development Director (RDD). Persistent economic difficulties have resulted in limited budgetary allocations for the water sector as a whole and Government has, in the past, relied heavily on external, principally bilateral financial assistance particularly from the Nordic countries.  2.3 Prior to 1971, activities in the water sector were administratively divided between the Ministry of Works (respo:sible for urban water supplies), the Ministry of Local Government (responsible for sewerage) and the Ministry of Agriculture (responsible for rural water supplies and water resources). In 1971, legislation was passed to provide the then newly established Ministry of Water Development and Power (MWDP) with jurisdiction over development of water policy for both the urban and rural water sub-sectors, newerage and drainage, irrigation, flood control and electricity. In 1975, responsibilities were expanded to include minerals and it was renamed the Ministry of Water, Energy and Minerals (MWEM). 2.4 With the adoption of national decentralization policies in 1972, the role of MWDP changed from one of controlling and managing the country's water programs to one of providing policy direction and technical assistance to 20 Regional Water Departments (RWDs) which executed the design, construction and maintenarce of water supply systems within the region and were responsible for billing and revenue collection. 2.5 RWDs were headed by Regional Water Engineers (RWEs) accountable to the Regional Development Director (RDD) on administrative and financial matters and responsible to the functional ministry for the operation and maintenance of improvements and extensions to water systems under their jurisdiction.l/ 2.6 In 1972, the Universal Rural Water Supply Program drawn up by the Government established 1991 as the target date for the provision of permanent and reliable water supplies to all rural settlements. In 1974, the Government advanced the target to 1980.2/ It was estimated, in late 1976, that only 22Z of the rural population were being served through water systems developed by MWEM. 2.7 In the urban water sub-sector, sectoral planning for water systems (defined as those on which consumers are charged by a metered rate or by property tax) has been carried out on a town-by-town basis as and when external financial assistance has become available. In the mid-1970s, about 85Z of the urban population had access to water at varying levels of quality and quantity. Supplies ranged, as they do today, from untreated surface and groundwater to completely treated water. However, towards the end of the decade, domestic and industrial demand outgrew supply and many urban systems began operating at their maximum capacities with limited reserves. Water shortages became common during peak periods of consumption and quAlity deteriorated. l/This system remains in place today. 2/Even with its original target date of 1991, this was not achieved.  - 3 - 2.8 The Bank's involvement in the water and sanitation sector in Tanzania began in 1973, in response to a Government request for assistance in identifying the highest priorities in the urban water sector and developing appronriate investment proposals. The Bank reviewed water conditions and proposed systems for seven towns experiencing acute shortages - Shinyanga, Lindi, Mtwara, Mbeya, Morogoro, Mwanza and Iringa. Prior to this, the Bank had been minimally involved in the urban sector in Tanzania, concentrating its efforts instead on furthering the Government's goals of rural development. 2.9 In December 1975, a Bank appraisal team reviewed and confirmed the economic viability of the seven proposed systems. Since the total project, as appraised at the time, was large- than available Bank financing, involvement was limited to assisting with the development of the water sunply system of one town - Morogoro. This system was chosen because it required :h2 largest investment and also because its development was a prerequisite for future Bank investment in Tanzania's industrial sector.l/ 2.10 A study conducted in preparation for the Urban Water Supply Project recommended the establishment of a national w&ter and sewerage corporation to oversee the activities of the sector. The Government viewed the creation of such a parastatal as ircompatible with its decentralization policies and opted instead for the creation of an Urban Water Supply Fund to manage and finance activities within the sector.2/ 2.12 With the Urban Water Supply Project, the Bank attempted not only to alleviate the immediate pressures caused by water shortages in Morogoro, but also to improve the broader aspects of the sector by targeting assistance to build up its institutional capacity. The latter objective included raising the standards of administration, technical operation and financial control of the institutions within the sector. 3. Project Objectives and Description 3.1 Both the physical need and priority of the project were clear - to respond primarily to the need of Morogoro's growing population (37,000 people in 1973) for larger volumes of water. The project also aimed to provide adequate water to an additional 27,000 people by 1986. In addition, the project sought to increase the amount of water available to institutions and industry from 840 m3/day to 10,500 m3/day. "hus, the Urban Water Supply Project was to make a l/The Morogoro Industrial Complex Project (Loans 1385 & 1386, 1977, US $23.0 million) financed the establishment of an Industrial Complex at Morogoro itcluding the necessary infrastructure and facilities for small and medium scsle industries. 2/Thi.l suggestion was later changed to be more in line with the one made origtnally by the Bank with the creation of the National Urban Water Authority (NUWA).  substantial contribution to the Government's investment program in the urban water sector. 3.2 The project also aimed to deal with the institutional and training problems in the water sector as identified by the Bank at appraisal. Specifically, an attempt was made to address the problem of financial independence and discipline by the creation of an urban water supply fund. Revenues earned from the sale of water in towns would finance operating and maintenance costs, debt service and minor extensions in accordance with budgets prepared by the variGus urban water supply units. 3.3 The project aimed to develop the production and distribution facilities of Morogoro's water supply system by: - the construction of an earth dam (1,650 m long and 12 m high) across the Ngerengere River near Morogoro with tower intake, culvert and spillway. The dam was to have a full capacity of 10 million ma of water and yield more than 52,000 me of water a day; - the construction of production facilities including transmission pipelines, treatment and pumping stations, storage reservoirs and reticulation extensions in Morogoro; and - supplying new vehicles for the urban water supply unit in Morogoro. The project also provided for management and technical assistance to: - strengthen the operations and manag';ruent in the water supply sector through provision of management advisory services in MWEM's headquarters; and - carry out the sector training program for the executing agency (MWEM), including expansion and diversification of the Water Resources Institute (WRI). 3.4 The estimated cost of the project net of taxes was US $18.5 million. The Bank Loan for US $1! million was to finance 81? of total project costs (net of taxes) - 100? of the foreign exchange costs (US $9.5 million) and 61? of the local costs (US $5.5 million). The remainder was counterpart funding from the Government. At appraisal, physical contingencies of 15? were provided for except in the case of dam construction where contingencies of 20? were added to the cost due to less certain rock excavation costs. The price contingencies included amounted to 19Z. Initially, the project was to be implemented over the period between 1976/77 and 1979/80.  - 5 - 3.5 The Bank Loan was supplemented in 1982 by an IDA Credit (1271-TA) of SD,R 3.6 million (US $4.0 million) and a grant from the Canadian International Development Agency (CIDA) administered by the Bank for US $3.2 million to cover substantial cost overruns. Revised total project costs were estimated at US $34.5 million - 80Z over the appraisal estimate and the original Closing Date of June 30, 1981 had to be extended several times to February 28, 1985. 4. Project Design and Organization 4.1 The need to strengthen the existing institutional arrangements in the sector was recognized and incorporated into the project design. Provision was made for the recruitment of management consultants to provide technical assistance in the area of water systems operation as well as in the execution of a training program for MWEM staff. 4.2 Also, valid attempts at making the urban water sub-sector commercially viable were made through the inclusion of the component creating the Urban Water Supply Fund. 5. Pro3ect Implementation 5.1 Delays occurred in the implementation of the contract for exploratory works for the construction of the Mindu Dam. Site investigation was completed in mid-1977 but as rock levels proved higber than expected on the right bank, the search for suitable construction materials required more time than anticipated. The contract was eventually completed in April 1979. Executed works were less than anticipated and a 10? cost savings was realized. 5.2 The contract for the construction of treatment works, pipelines and reservoirs, awarded in March 1979, started in April 1979 and was completed by March 1981, three months behind schedule with a 1472 cost overrun. The delay was experienced as a result of a nationwide shortage of construction materials. The increase in costs resulted from need for the transportation of aggregates from the quarries at Mbeya and Tanga to the site, since that of Morogoro was inoperative. 5.3 Civil works on the pumping stations proceeded on target and equipment installation which started in June 1980, was completed by the end of December 1980. The water treatment facilities were completed and commissioned by the end of May 1985. There was a cost overrun of 75Z due to the supply of switchgear and transformers in a voltage (as requested by TANESCO) much higher than anticipated at appraisal.  5.4 Problems arose with the implementation of the major contract - construction of the Mindu dam. The contract was awarded in December 1978, signed in March 1979 and construction began in late 1979. Considerable delays occurred in procurement and some critical items of equipment did not reach the site until April 1980. The equipment already on the site broke down frequently and there were protracted delays in repairs. Among the other problems faced was that of a lack of qualified personnel. The contractor's staff on site never reached full strength and the chief engineer who resigned in March 1980, was not replaced until September 1980. 5.5 In November 1979, MWEM concerned about the contract, instituted a program of regular monthly meetings with the contractor in order to monitor progress. In March 1980, it was determined that only 5Z of the works on the contract had been executed in 502 of the contract time. MWEM informed the contractor in late May 1980 of its intention to terminate the contract unless assurances of timely completion could be provided. The contractor presented a revised construction schedule to MWEM allowing for completion of the dam by February 1982 and on this basis, the original contract was amended. 5.6 The situation seemed to improve after the contractor employed new site staff and by the beginning of February 1981, the right bank cofferdam, 55Z of the right bank impermeable core, 102 of the right bank filter, the inlet- outlet channel and 60Z of the spillway excavation had been completed. 5.7 Performance deteriorated again to about 152 of planned output during February when 702 of the technical staff left the site and 502 of the construction equipment broke down. In March 1981, the contractor informed MWEM that he was unable to fulfill the conditions established under the amended contract and requested additional funding to cover cost increases. 5.8 MWEM dismissed the contractor in August 1981 and negotiated a new contract with the bidder evaluated second lowest at the time of original tendering. A contingency pumping system drawing water directly from the Ngerengere River was set up to provide a supply of raw water while dam completion was underway. The system only operated to 202 and its establishment contributed to the 1472 cost overrun experienced on the contract for the construction of treatment works. 5.9 There was a need for supplemental financing to complete the dam. Upon examination of the performance of the Borrower over the preceding period, the Bank approved a supplementary IDA Credit (1271-TA) in mid-1982. Towards the end of 1983, it became apparent that there would be contractors claims for cost overruns but the country's economic situation at the time did not allow the Government to cover them. The Bank approached CIDA who approved a grant of US $3.2 millionl/ conditional on four points: i/Seventy-five percent of this was transfered from funds already allocated to the Tabora Rural Development Project (Credit 703-TA, 1977, US $7.2 million) and the remainder from other existing programs.  that an agreement between the Government and the Bank be reached for the diversion of funds from the Tabora Rural Development Project (Credit 703-TA) towards completion of the Hindu Dam; that the amount would not exceed Can $3.8 million (US $3.2 million); that written confirmation from the Government a"d the Bank would be obtained indicating that the grant would be sufficient to complete the dam; and that full prior disbursement of IDA funding take place and that the grant would not be available before the April 1983 - March 1984 fiscal year. 5.10 On February 29, 1984 the Bank gave CIDA written confirmation that the grant would allow full physical completion of the daml/. CIDA also received a written assurance from the Government that it would be responsible for any additional cost overruns resulting from contractor claims subsequent to project completion. 5.11 The replacement contractor faced several problems: a nationwide fuel shortage in 1983; the need for additional cement to carry out rock excavation in the spillway; and the need to haul stones from the Malela quarry to the Mindu quarry due to the poor quality of the stones from the latter. 5.12 The dam was completed after a delay of about 9 months from the revised contract date and with a substantial increase in construction cost - 2381 over appraisal estimates. About 111 of the cost overrun was due to the additional quantities of inputs (diesel, petrol, cement and steel) required while spillway modifications and rock haulage contributed another 8.4z. 5.13 The contract covering the expansion of WRI which included the construction of a library, laboratory, and an amphitheater and a training component, was awarded in November 1980. However, after s budgetary review in December 1980, the contract was canceled and its funds diverted towards completion of the Mindu Dam. 5.14 During project implementation, the issues surrounding the creation of the Urban Water Supply Fund were the subject of protracted discussions among various Government agencies. The Fund as originally defined, would have been a cross between a parastatal and a government department. In April 1979, MWEM carried out a reassessment of its sector needs and suggested that a commercially- oriented parastatal be created with assistance from the Bank. l/This was not the case as there was an additional cost overrun of 4Z after the grant was administered.  - 8 - 5.15 Management consultants prepared the legislative, organizational, financial and staffing aspects of the proposed parastatal which was to have the initial responsibility over the Dar-es-Salaam system and eventual control over all urban water supply systems. Cabinet approval was given to the establishment of the National Urban Water Authority (NUWA) in June 1980, Parliament approved its creation in April 1981, and in early 1982, the Chairman and Directors were appointed. The Director-General was appointed in September 1982. NUWA took over the Dar-es-Salaam water supply system on October 1, 1984 but employment of consultants and procurement of essential items was delayed by a lack of foreign exchange. Further assistance in this area was provided under the Dar-es-Salaam Sewerage and Sanitation Project (Credit 1312-TA, 1982, US$ 22.5 million). 5.16 Urban water rates were increased once by 35Z effective January 1, 1980 (from 2.20 TSh/m! to 2.97 TSh/m8) to keep tariffs at their July 1976 level (in real terms) as outlined under the Loan Agreement. The expected 32Z increase from January 1981 and the further 89Z increase over current levela in April 1982 did not take place. Proposed flat rates were tested in 3 towns during 1978 and the Government was expected to decide on their implementation after evaluation of the results from these experiments had taken place. 5.17 After re-examining the tariff issue in 1980, the Government argued that rates be based on the results of a nationwide study determining the actual production and distribution costs of treated water in urban areas. The Bank- commissioned, SIDA-financed study completed in April 1983 made specific recommendations on the structure and levels of water charges to be borne by various users. These recommendations were to have been implemented by June 30, 1983. However, in March 1983, the Bank supervision mission determined that revisions to the study were needed in the areas dealing with the assumptions used and tariff development for specific consumer categories. The final revised report was submitted in February 1985 after which, HWEH recommended to the Cabinet an immediate nationwide tariff increase of 100Z be instituted.l/ 6. Project Results 6.1 The cost of construction of the Mindu Dam was under-estimated at appraisal. Bid prices ranged from TSh 116 million to TSh 196 million compared to the appraisal estimate of TSh 55 million. The cost estimates prepared at appraisal for pumping station equipment were also inadequate, leading to a 75Z cost overrun. As a result, there was a total project cost overrun of 87Z (from US $19.2 million to US $35.9 million). Cost increases were also due to the poor performance of the main civil works contractor and to the shortages and price increases of inputs such as fuel and cement faced by the subsequent contractor. The delay in the construction of the Hindu Dam necessitated an extension of the Closing Date from June 30, 1981 to February 28, 1985. l/This did not take place obviously because with the Closing Date at hand, the leverage exercised by the Bank throughout implementation was no longer present.  -9- 6.2 The project went part of the way towards meeting its objective of expanding the water supply of Morogoro. By the middle of June 1985, all the components of the new system - with the exception of the Mindu Dam - were in place and water production, though only at 34S of the level projected at appraisal for that point in time, had started to increase. 6.3 Although the contractor still had site clearance, grass and reed growth and two burst pipes to take care of, the completion certificate for the dam was issued on February 25, 1985. Completion of the Hindu Dam took 5 years (49 months longer than anticipated) and was achieved with a 238? cost overrun over the appraisal estimate. Part of the funds earmarked for the procurement of vehicles for the water supply unit in Horogoro and for the provision of technical assistance to WRI as well as for its extension and diver2ification were reallocrted towards completion of the dam.I/ This was seen as essential for ensuring that the infrastructure required for enterprises being supported in that area - to the tune of US$ 250 million - be in place. (The Bank had invested in two other projects in the area - the Horogoro Industrial Complex Project (Loans 1385-TA and 1386-TA, 1977, US $23 million) and the Horogoro Textile Project (Loan 1607-TA & Credit 0833-TA, 1978, US $20 million) on the assumption that an increased water supply would be available). 6.4 There was only one set of financial statements (despite constant reminders having been sent to MWEM) submitted to the Bank during implementation thus, close monitoring of the financial condition of the project was not possible. In July 1984, the Bank reviewed a draft summary of expenditures and found them incomplete as far as foreign costs were concerned. In the early months after project completion in 1985, operation and maintenance costs for FY1985 were estimated to be TSh 8.5 million, 81 higheL than anticipated at appraisal. In the same period, revenue collection was estimated to be TSh 2.80/m8, only 14? of the target set at appraisal. 6.5 The NUWA takeover of the system in Morogoro was scheduled for 1985. However, in mid-1984, with NUWA having achieved only 30? efficiency in billing and collection, the Bank recommended the takeover be postponed until such time that management capacity was raised to the level required for the smooth running of the system. 7. Proiect Sustainabilitv 7.1 The sustainability of the project depends on the overall urban water supply sub-sector becoming self-financing and well managed in a timely fashion. Both these conditions cannot be achieved without a realistic tariff system that will ensure cost recovery and proper maintenance. Thus, it is doubtful that the results of this project will be sustainable in the long term. 1/A supplemental IDA credit and a CIDA grant were also approved for this purpose.  - 10 - 7.2 Also, with the physical components of the project complete (and the system functional), an effective institutional framework for their utilization is essential for any benefits of this project to be sustained. Thus, the strengthening of NUWA in terms of re-examining the existing system of sector management with a view to setting clear goals, achieving autonomy of action on commercial lines, retaining competent technical staff and managing its financial resources efficiently is imperative. S. Bank Performance 8.1 Project identification and preparation were professionally tackled. Although the requisite skill mix was present at identification and preparation, the basic project design did not meet normal Bank standards. An example of this was seen in the lack of attention paid to sources of construction materials for the Mindu Dam which caused the delay in the contract for exploratory works. 8.2 Appraisal was not carried out at a high level, as cost estimates for the major civil works component and procurement of equipment for pumping stations were proven unrealistic. Supervision seemed to have been carried out regularly throughout the course of implementation, but it was not clear why problems with the major civil works contractor were allowed to continue for so long. 8.3 A major aspect of the Bank's performance during project preparation was the identification of the need for a reorganization of Tanzania's water sector. The Bank recognized the need for the sector to become commercially viable and its recommendation for the creation of a parastatal to oversee sector activities was in line with this. While the approach in this area was sensible ie. coupling the major investment with institutional capacity building, the Bank did not follow 'ts own recommendation as evidenced by the diversion of funds earmarked for this purpose towards completion of the dam. 8.4 The following lessons may be learned from the implementation of the Urban Water Supply Projects a) the importance of accurate cost estimates and projections made at appraisal; b) the importance of an autonomous institution, well organized and competently sta.fed in the areas of management, technical and financial operations to the smooth operation of water supply systems; c) the need for a comprehensive and realistic tariff structure reflecting the full costs of provision of water to consumers in order to make available funds necessary for the operation and maintenance of water supply systems; d) the need to -3tablish systems that allow close monitoring of contractors and provide timely warning of potential problems; and  - 11 - e) the need for the Bank to exercise its sanctions under the Agreements if the Borrower's commitment is lacking. 9. Borrower Performance 9.1 Concern over the potential occurrence of substantial cost overruns led to a delay in the decision to dis-iss the major civil works contractor. Since at the time the country's economic situation was such that prices of inputs, when available, had increased substantially, an earlier decision to terminate the original contract would not only have saved time but, reduced the overall cost of the dam. 9.2 The decision of the Borrower to establish NUWA showed their acceptance of the necessity of a commercially-oriented water sector for the country and displayed their commitment towards achieving this. However, performance on the part of the executing agency in implementing the required organizational arrangements suffered from its weak institutional capacity. 9.3 The commitment of the Borrower to the completion of this project was clear and led to its absorption of cost overruns over and above both the supplementary IDA Credit and the CIDA Grant. 9.4 Submission of audited financial accounts to the Bank after each fiscal year did not take place and poor records were kept on foreign exchange expenditures. This severely hindered the evaluation of the financial performance and condition of the project during implementation. 10. Project Relationship 10.1 The relationship between the on this project was to a large extent colored by the Bank's relationship with Tanzania during this period.l/ The ideological direction of the Government and thus, the environment of the country made the resolution of key technical and professional issues difficult. l/The report, TANZANIA - World Bank/Tanzania Relations 1961 - 1987, Operations Evaluation Department (OED), Sections 2 & 3, Vol. 2, Jan. 1990, details this fully.  - 12 - 11. Consulting Services 11.1 Both the engineering and management consultants assigned competent staff to their components of the project and thus, performed their function adequately. Progress reports were prepared and submitted in good time and discussed extensively with the Borrower. 11.2 The engineering consultants alerted the Borrower and the Bank to the poor performance of the original contractor on the construction of the Mindu Dam, and did so in good time. In doing so they provided valuable input in the decision to dismiss him and re-award the contract. 12. Project Documentation and Data 12.1 The Loan and Credit Agreements made no specific reference to pre- qualification procedures under the procurement guidelines. Aside from this they provided adequate guidance to project implementation. Reliable data on the physical aspects of the project over the implementation period were provided by the regular progress reports submitted by the engineering consultant.  - 13 - PROJECT COMPLETION REPORT TANZANIA URBAN WATER SUPPLY PROJECT (LOAN 1354-TA/CREDIT 1271-TA) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE On August 20, 1991 the Bank sent the Borrower Parts I and III with the request to prepare Part II by November 20, 1991, but after two reminders no reply was received.  PROJECT COMPLETION REPORT TANZANIA URBAN WATER SUPPLY PROJECT (LOAN 1354-TAICREDIT 1271-TA) PART IIIs STATISTICAL INFORMATION  - 15 - TABLE 1 PROJECT COMPLETION BEPORT TANZANIA URBAN WATER SUPPLY PROJECT (LOAN 1354-TA/CREDIT 1271-TA) RELATED BANK LOAMNSICREDITS PROJECT TITLE YEAR OF STATUS LOANICREDIT PURPOSE APPRAISAL (Z COMPLETE) COMMENTS Dar-es-Salaam Improvement of sewerage Sewerage & and sanitation services Sanitation in Dar-es-Salaam. 1982 100 Project 1312-TA Agricul ural Proiects Tobacco Processing Increase operational Project capacity of the TTPC-; 0658-TA facility at Morogoro. 1976 100 Tabora Rural Development Improve the well-being A low-cost water Project of the rural population supply component 0703-TA of Tabora. 1977 100 was included. Mwanza- Improve the well-being Shinyanga Rural of the rural populations A water supply com- Development of Mwanza and ponent was included 0803-TA Shinyanga. 1978 100 in this project. 'Tanzania Tobacco Processing Company  - 16 - TABLE2 PROJECT COMPLETION REPORT TANZANIA URBAN WATER SUPPLY PROJECT (LOAN 1354-TA/CREDIT 1271-TA) PROJECT TIMETABLE ITEM PLANNED DATE REVISED DATE ACTUAL DATE Identitication Mission 04/72 10/78 Proparation Mission 06/78 10/75 Appraisal Mission 08104/76 04106/76 12/76 Loan Negotiation (1864-TA) 08/78 11/09/76 Board Approval (1854-TA) 09/76 12/27/76 Loan Signature (1864-TA) 01/05/77 Loan Effectiveness (1864-TA) 04/05/77 08/02/78 Board Approval (1271-TA) 06/24/62 Credit Signature (1271-TA) 12/09/82 Credit Effectiveness (1271-TA) 06/07/88 Project Completion 06/80/81 02/28/85 Loan/Credit Closing 06/80/81 12/80/84 02/28/86  - 17 - TABLE3 PROJECT CO:4PLETION REPORT TANZANIA URBAN WATER SUPPLY PROJECT (LOAN 1354-TA/CREDIT 1271-TA) CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ million) A. LOAN 1354-TA CUMULATIVE DISBURSEMENTS AT END OF QUARTER BANK FISCAL YEAR AND APPRAISAL ACTUAL AS X OF QUARTER ENDING ESTIMATES ACTUAL ESTIMATE LOAN 1854-TA FY 1978 June 80, 1978 1.60 0.28 1 FY 1979 September 80, 1978 8.00 0.82 11 December 81, 1978 4.60 0.82 7 March 81, 1979 6.00 0.82 14 June 80, 1979 7.50 1.04 14 FY 1980 September 80, 1979 9.00 2.91 82 December 81, 1979 10.50 4.12 89 March 81, 1980 11.25 5.01 44 June 80, 1980 12.00 6.08 s0 FY 1981 September 80, 1980 12.76 7.65 69 December 81, 1980 18.50 8.49 62 Marcit 81, 1981 14.26 9.89 66 June 80, 1981 15.00 9.64 64 FY 1982 September 80, 1981 10.06 67 December 81, 1981 10.98 78 March 81, 1982 11.18 74 June 80, 1982 12.85 82 FY 1988 September 80, 1982 12.89 88 December 81, 1982 18.66 91 March 81, 1988 14.74 go August 26, 1988 15.00 100 Orillinl Closing Date: June 30, 1981. Fully Disbursed: June 80, 1984.  - 18 - 'ROJECT COMPLETION REPORT TANZANIA URBAN WATER SUPPLY PROJECT (LOAN 1354-TA/CREDIT 1271-TA) TABLE 3 CUMULATIVE ESTIMATED AND ACTUAL DISBURSFMENTS (US $ million) B. CREDIT 1271-TA & CIDA GRANT BANK FISCAL YEAR AND CUMULATIVE DISBURSEMENTS QUARTER ENDING AT END OP QUARTER ACTUAL CREDIT 1271-TA* CIDA GRANT' FY 1983 June 30, 1983 0.30 FY 1984 September 30, 1983 1.30 December 31. 1983 2.20 March 31, 1984 2.80 June 30, 1984 3.79 0.30 FY 1985 September 30, 1984 1.40 December 31, 1984 2.50 March 31, 1985 3.20 'SDR 3.6 milliorn (US $ 4.0 million) - Effective: 06/07/83; Fully Disbursed : 12/31/84 b US $3.2 million - Effective: 06/14/84; Fully Disbursed: 02/28/85  - 19 - TABLE4 PROJECT COMPLETION REPORT TANZANIA URBAN WATER SUPPLY PROJECT (LOAN 1354-TA/CREDIT 1271-TA) PROJECT COSTS AND FINANCING A. PROJECT COSTS" (US$ million) APPRAISAL REVISED ESTIMATES (1975) ESTIMATES2 ACTUAL' ITEMS LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FOREIGN TOTAL De* 3.72 8.06 6.77 8.68 14.48 28.06 9.88 18.60 22.88 Material. A Equipmnt 8.54 4.90 8.44 4.48 6.40 10.88 5.06 7.34 12.40 Technical Assistance A Training 2.52 1.60 4.02 0.04 0.67 0.61 - 0.60 0.60 TOTAL PROJECT COST 9.78 9.46 19.28 18.10 21.40 84.60 14.44 21.46 85.69