Benin - Second Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15190 PROJECT COMPLETION REPORT BFNIN SECOND WATER SUPPLY PROJECT (CREDIT 1721-BEN) DECXEBR 22, 1995 Infrastructure Operations Division Central-Western Africa Department Africa Region 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 EQUIVALENT (period average) Currency unit: CFA Franc (CFAF) 1986: US$1.00 = CFAF 346.30 1987: US$1.00 = CFAF 300.54 1988: US$1.00 = CFAF 297.85 1989: US$1.00 = CFAF 319.01 1990: US$1.00 = CFAF 272.26 1991: US$1.00 = CFAF 282.11 1992: US$1.00 = CFAF 264.69 1993: US$1.00 = CFAF 283.16 MEASURES I meter = 3.28 feet 1 liter = 0.26 US gallon 1 cubic meter (m3) = 264 US gallons or 1,000 liters 1 cubic meter/sec. (m3/s) = 31.5 million cubic meters per year or 22.8 million US gallons per day 1 liter per capita per day = 0.26 US gallon per capita per day (lcd) FISCAL YEAR January 1 to December 31 GLOSSARY OF ABBREVIATIONS AGETUR Agence d'Exdcution des Travaux Urbains CCCE Caisse Centrale de Cooperation Economique (presently CFD, Caisse Francaise de Developpement) CEPEPE Centre pour la Promotion de l'Emploi et de la Petite et Moyenne Entreprise DH Direction de I'Hydraulique DV Direction de la Voirie DVU Direction des Voiries Urbaines EIB European Investment Bank GIGG Groupement IGIP / GKW / GRAS - Joint Venture of Engineering Consultants IDB Islamic Development Bank IGIP Ingenieur Gesellschaft fur Internationale Planungsaufgaben MET Ministere de I' Equipement et des Transports MSP Management Support Program OPEC Organization of Petroleum Exporting Countries PCR Project Completion Report RWS Rural Water Supply SAR Staff Appraisal Report SBEE Socidte Beninoise d' Electricite et d' Eau SW Staff-weeks UWS Urban Water Supply  FOR OFFICIAL USE ONLY The World Bank Washington, D C. 20433 U.S.A. Office of the Director-General Operations Evaluabon December 22, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Benin Second Water Supply Project (Credit 1721-BEN) Attached is the Project Completion Report (PCR) on the Benin: Second Water Supply Project (Credit 1721-BEN, approved in FY86) prepared by the Africa Regional Office with Part 11 contributed by the Borrower. The Credit for SDR8.6 million was closed on schedule on December 31. 1993. A balance of SDR1.02 million was canceled. The Credit was the second to assist the water sector in Benin, the first one being an engineerilng loan. Its main objective was to improve the financial viability of the urban water supply sector by: (a) implementing a low-cost expansion of the water supply system in Benin's two largest cities: Cotonou and Porto Novo; (b) promoting domestic connections to increase the revenue base; (c) setting tariffs to reflect long-term marginal costs; (d) strengthening the utility's management, and (e) implementing sound budget practices to avoid accumulating unpaid bills. An amendment to the Credit in August 1990 added the promotion of small-scale contractors as part of a labor-intensive public works operation. The project's physical components were implemented successfully; some targets were even exceeded, such as the number of connections, which were 2.5 times higher than estimated at appraisal. The labor-intensive public works operation was implemented successfully through a new agency and demonstrated that small contractors can operate reliably with proper supervision. Project cost was 20 percent lower than estimated even after adding the public works component. The project did not meet its main objective: tariffs were not adjusted, unpaid bills for water increased, and the government did not pay its water bill. Yet, because water is a minor share of the utility, its overall finances were unaffected by these bad outcomes. The covenanted financial rates of return were met for the last three years of project implementation for the utility as a whole due to the profitable electricity sales. The reestimated economic rate of return was only slightly positive (vs. 15 percent at appraisal) because demand did not increase as much as forecast and tariffs were not adjusted as planned. The utility did not cooperate on the institutional improvements partly because project responsibility was given to the head of the water department, itself only 15 percent of the whlole utility. The PCR also acknowledged IDA's failure to assess project risks and to enforce covenants, especially the financial ones. The outcome of the project is rated as unsatisfactory; its sustainability is rated as uncertaini: and its impact on institutional development is rated as negligible. The PCR describes adequately the success on the technical side and the failure to improve the sector's financial viability. No audit is planned. 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.   FOR OFFICIAL USE ONLY TABLE OF CONTENTS PREFACE EVALUATION SUMMARY.1i PART I: PROJECT REVIEW FROM BANK' S PERSPECTIVE 1 A. PROJECT IDENTITY . . . ...........................I B. BACKGROUND ... ... ......................1 C. PROJECT OBJECTIVES AND DESCRIPTION ........................................ 2 Project O bjectives . . . ......................................... 2 Project D escription ............................................ 3 D. PROJECT DESIGN AND ORGANIZATION ............................................3 E. PROJECT IMPLEMNTATION ......................................... . . 4 Credit Effectiveness and Project Start-up ......................................... . 4 implementation Schedule ........................................ . .5 Procurement .............................................6 Project Costs and Financing ........................................ . . 6 Disbursements and Credit Allocation ........................................ . . 7 F. PROJECT RESULTS ...................................... . . . 7 G. PROJECT SUSTAINABELITY .............................................8 H. BANK PERFORMANCE .............................................9 I. BORROWER PERFORMANCE .............................................9 J. PROJECT RELATIONSHIP . . .............................. 10 K. CONSULTING SERVICES ............................................ 10 L. PROJECT DOCUMENTATION AND DATA ............................................ 10 M. CONCLUSIONS AND LESSONS LEARNED .......................................... 10 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 12 A. GENERAL COMMENTS ............................................ 12 B. CONCLUSIONS ............................................ 13 PART m1: STATISTICAL INFORMATION 13 1. Related IDA Credits ...................................... 16 2. Project Timetable ...................................... 17 3. Credit Disbursements ...................................... 17 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 wiLhout World Bank authorization.  4. Project Implementation . . ............................. 18 5. Project Costs and Financing ................................... 20 6. Project Results. ................................................ 2 7. Status of Covenants . ............................................... 23 8. Use of Bank Resources ................................................ 29 ANNEX 1 - WATER PRODUCTION AND SALES- 1987/1993 .................... 31 ANNEX 2 - WATER AND ELECTRICITY SALES-1987/1993 ...................... 32 ANNEX 3 - SUMMARY INCOME STATEMENTS (ACTUAL) .................... 33  ) PROJECT COMPLETION REPORT BENIN SECOND WATER SUPPLY PROJECT (CREDIT 1721 - BEN) PREFACE 1. This is the Project Completion Report (PCR) for the Second Water Supply Project in Benin, for which Credit 1721 - BEN in the amount of SDR 8.6 million was approved on June 30, 1986 and signed on June 29, 1987. The Credit became effective on March 25, 1988 and was closed on December 31, 1993 as originally scheduled. The last disbursement under the credit was on March 11, 1994; only 88% of the credit was disbursed, with a balance of SDR 1,024,344.77 that was canceled effective March 11, 1994. 2. The PCR was prepared by the Infrastructure Operations Division of the Central-Western Africa Department (AF4IN). The completion mission took place in June 1994. The Societe Beninoise d'Electricite et d' Eau (SBEE) was then requested to prepare Part II which was received in October 1994. 3. The PCR is based on the President's Report, the Staff Appraisal Report (SAR), the Development Credit Agreement, the Project Agreement, reports by and correspondence between IDA and the Government and SBEE, internal memoranda and interviews with IDA staff who have been associated with the project over the years.   ii PROJECT COMPLETION REPORT BENIN SECOND WATER SUPPLY PROJECT (CREDIT 1721 - BEN) EVALUATION SUMMARY Objectives i. The main objective of the project was to improve the financial viability of the urban water supply sector so as to allow also for further expansion in small secondary centers by: (a) implementing low cost reinforcements of the water supply systems in Cotonou and Porto Novo; (b) promoting domestic connections to increase access of the urban population to the piped network and expanding the revenue base of the Societe Beninoise d'Electricite el d'Eau (SBEE); (c) setting water tariffs to reflect long-term marginal costs; (d) strengthening SBEE's management capability; and (e) implementing sound budgetary and commercial practices which would inter alia avoid accumulation of unpaid bills. In August 1990, the project's objectives were amended to include also the promotion of small scale contractors through a labor intensive public works operation (paragraph 5). Implementation Experience ii. The expansion of water supply facilities in Cotonou and Porto Novo has been implemented on time and within budget. The number of additional water connections was about two and a half times the SAR estimate. The basic facilities became operational by August 1992, are functioning well and are well maintained. The Management Support Program (MSP) designed to strengthen SBEE's management capability was not implemented. Only about half of the amount allocated for the replenishment of SBEE's working capital was used. The labor intensive pilot operation for public works was very successfully implemented. The actual project cost was about 20% less than the estimate, despite the addition of the pilot operation for public works (paragraphs 12 to 19). Results iii. The project achieved its physical objectives of increasing the availability and the quality of water, and the number of people served. Actually there has been a dramatic increase (by about 130%) in domestic connections which were made more affordable. Since the Management Support Program (MSP) was not implemented, the expected results of this component did not materialize, with the exception of staff productivity which improved significantly. Otherwise, receivables for water increased, tariffs were not adjusted to reflect long-term marginal costs, the covenanted internal financial rates of return were partly achieved from 1991 onwards, and the actual economic rate of return is estimated to be only slightly positive. The government cash flow situation was more favorable than expected, albeit not in the manner it was intended, but simply because Government did not pay its bills to SBEE. The overall  iii achievement of the project in terms of the institutional development of SBEE was therefore negligible, and the financial viability of the urban water supply sector has not improved. Under the labor intensive pilot operation for public works, a large number of small contractors, including some that had experience only in housing construction, were awarded contracts for labor intensive street paving and carried them out satisfactorily. On balance, the overall outcome of the project is judged to have been unsatisfactory.(paragraphs 20 to 23). Sustainability iv. Despite the serious shortcomings on the institutional development side, the project is likely to maintain an acceptable level of net benefits throughout its economic life (paragraph 24). Findings and lessons learned v. A number of lessons, some of them obvious and not unique to this project, can be drawn from the experience with the project (paragraph 31): (a) The objective of increasing the availability and quality of water and the number of people served can be achieved with good project preparation and supervision by the implementing agency, and with adequate incentives to increase the number of water connections. (b) A policy of encouraging domestic connections and the development of a system of neighborhood vendors can be very successful to eliminate public standpipes, which are usually a source of arrears. (c) Good technical performance is not enough for a project with a revenue earning entity, but there is also a need for good financial and commercial performance. (d) In order for the objectives of a project to be achieved, special efforts need to be made (including adequate supervision by IDA with the appropriate skill mix, and the use by IDA of all available leverage) to ensure that all components are implemented (as redesigned if needed) and to enforce compliance with covenants. (e) The labor intensive public works have demonstrated that, with proper training and supervision, and appropriate technology, housing contractors can undertake urban road rehabilitation and construction, and that it is possible to award contracts to small contractors, to have the works supervised properly and carried out satisfactorily and to have the contractors paid promptly, all of this within a reasonable time frame and at a reasonable cost.  l PROJECT COMPLETION REPORT BENIN SECOND WATER SUPPLY PROJECT (CREDIT 1721 - BEN) PART I: PROJECT REVIEW FROM BANK' S PERSPECTIVE A. PROJECT IDENTITY Name Second Water Supply Project Credit Number 1721 - BEN RVP Unit Africa Region Country Benin Sector Infrastructure Sub - Sector Water Supply B. BACKGROUND 1. A small, poor country situated on the Atlantic coast of Western Africa in the equatorial zone, Benin had at the time of project appraisal a population of 3.8 million and an estimated 1984 per capita GDP of US$240. The country's economy was based mostly on agriculture, particularly traditional farming. The very small industrial sector consisted mainly of a few import substitution and agricultural processing plants, and the recently built sugar and cement plants faced problems of production costs, pricing and market uncertainties. Economic policy during the 1970s emphasized national control and self-reliance with much of the economy put under state ownership. In the early 1980s, curtailed activities in Nigeria and Niger reduced the demand for Benin's manufactures and transit services; the rate of GDP growth fell, public finances and the liquidity of the domestic banking system deteriorated, and the country experienced debt service difficulties. In recognition of these many problems the Government began in 1982 the introduction of measures aimed at reducing distortions and improving the performance of the economy, including the preparation of a stabilization program. 2. The main objective of the project was in line with the Government's policy to rehabilitate the parapublic sector. A water project with Societe Beninoise d'Electricite et d'Eau (SBEE), one of the few well functioning parastatals in Benin, was timely. SBEE had been asked by Government to extend its operations in several secondary centers; there was a danger of uncontrolled development in those very high cost centers and a need to introduce tariffs that would reflect marginal costs. It was evident that  2 establishment of a sound financial framework in the urban water supply sector could only be based on activities initially concentrating in the main urban centers of Cotonou and Porto Novo. 3. Ground water constituted the major source of drinking water and was available almost throughout the country. It was estimated that about 60 percent of the urban population had access to safe water; 17 percent being served by house connections, 13 percent by standpipes and 30 percent obtaining their water from neighbors (private reselling). The remaining 40 percent were believed to rely only on untreated water sources, such as private wells, for their drinking water needs. In rural areas, construction of modern water points had started in 1980. The sanitary situation was very poor in both urban centers and rural areas. 4. Responsibilities for the Urban Water Supply (UWS) sector were exclusively in the hands of SBEE, a combined electricity/water utility established in 1973 as a public enterprise. SBEE reported to the Ministry of Finance and Economy (also responsible for Mines and Energy), which transmitted Government's objectives without major interference in SBEE's day-to-day operations. SBEE programmed, financed and executed investments, was the owner of the assets, operated the facilities and serviced the debt. SBEE enjoyed a certain measure of managerial autonomy except in the areas of tariff setting and staff remuneration policies which were placed under direct responsibility of Government. The rural water supply sector was placed under the responsibility of Direction de l'Hydraulique (DH) of the Ministry of Equipment and Transportation. Responsibilities were divided among several agencies for urban sanitation and ill-defined for rural sanitation. 5. The Urban Water Supply (UWS) sector being entirely in the hands of SBEE, a commercially oriented entity, the principle of payment for the sale of piped water was widely accepted. However, in spite of the relatively good development of the distribution networks in the centers presently equipped, the number of domestic connections remained rather low because their cost was too high for a large segment of the population. A policy of introducing incentives to increase the number of small (or social) connections would have the advantages of increasing the number of people served and SBEE's revenues, as well as improving the health situation in the country. The positive impact of such a policy would be reinforced by the widespread practice of water resale to neighbors, an useful community service which assured regular revenues to SBEE whereas public standpipes were one of the main sources of public arrears. C. PROJECT OBJECTIVES AND DESCRIPTION Project Objectives 6. The main objective of the project was to improve the financial viability of the urban water supply sector so as to allow also for further expansion in small secondary centers by: (a) implementing low cost reinforcements of the water supply systems in Cotonou and Porto Novo; (b) promoting domestic connections to increase access of the urban population to the piped network and expand the revenue basis of SBEE; (c) setting water tariffs to reflect long-term marginal costs; (d) strengthening SBEE's management capability; and (e) implementing sound budgetary and commercial practices which would inter alia avoid accumulation of unpaid bills. In August 1990, the project's objectives were amended to include also the promotion of the development of small scale contractors through a labor intensive public works operation.  3 Project Description 7. The project consisted of the following components: (a) expansion of water supply facilities in Cotonou and Porto Novo including: (i) drilling of ten new boreholes; (ii) extension of two existing neutralization plants and construction of a new one; (iii) construction of three storage service reservoirs and rehabilitation of three existing reservoirs; (iv) supply and laying of 23 km of feeders and 275 km of distribution pipes; and (v) installation of about 11,500 domestic connections; (b) strengthening of SBEE's management capability through (i) training of intermediate and higher level staff ; (ii) consultancy services for organization, accounting and data processing; (iii) technical assistance to the water, finance, data processing and training department; and (iv) expansion of office space; (c) replenishment of SBEE's working capital including supply of spare parts; and (d) a labor intensive pilot operation for public works - basically street paving and rehabilitation and cleaning of drains (This component was added in August 1990). 8. Technically, the project was of standard nature. The primary benefits of the project were improved water supply both in quantity and quality for Cotonou and Porto Novo; simultaneously, SBEE was to benefit from institution building efforts under the project and in concert with projects financed by other donors. While the population of the project area was expected to grow from about 650,000 to 1,300,000 between 1984 and 1994, the population supplied by water, either through direct connections or indirectly through community connections (water resale to neighbors or "concession standpipes"), was expected to increase by about 640,000 or 150 percent, from 428,000 to 1,065,000. The estimated cost of the project, including contingencies but excluding taxes and duties, was US$ 30.5 million. Total financing requirements including interest during construction were US$ 33.0 million. The project was cofinanced by CCCE of France, the Fund of the Organization of Petroleum Exporting Countries (OPEC Fund),the European Investment Bank (EIB) and SBEE. D. PROJECT DESIGN AND ORGANIZATION 9. The Bank's initial entry into the UWS and sanitation sectors in Benin was in the form of an Engineering Credit (Cr. 1171 - BEN of 1981) whose objectives were to provide relief to the most urgent water and sanitation needs in Cotonou, examine long-term solutions to water, sanitation and urban problems, prepare specific projects, and suggest appropriate institutional arrangements and alternative sources of revenues for the sector. Studies financed under the credit revealed the important needs of the sector, at a time when SBEE was asked by Government to extend its water supply activities to some 46 secondary centers. Thus, it was crucial to assist SBEE, one of the few well functioning parastatal enterprises in the country, in the establishment of a sound financial framework and in the reinforcement of its managerial structures. Since the improvement of the financial viability of the UWS sector could only be based on activities concentrating on the main urban centers, the proposed project did not include rural water supply (as originally planned), nor even secondary centers. The social objective to increase the  4 urban population's access to drinking water by promoting domestic connections would also enlarge SBEE's revenues base and help meet the objective of financial viability. A water supply project with SBEE was considered timely due to its complementary nature to a proposed power project with SBEE and in view of the government focus on rehabilitation / strengthening of the public enterprise sector. A combined water / urban project was initially included in the lending program; in order to avoid over- complexities in design and implementation arrangements, it was decided to have two projects whose preparation would be closely coordinated and which would be implemented in parallel. Both projects were expected to improve substantially environmental living conditions and to provide a minimum acceptable level of welfare to the urban population. 10. Technical preparation was undertaken on the basis of preliminary studies carried out by consultants GIGG (a joint venture of consulting firms IGIP, GKW, GRAS in Germany) as part of the master plan studies financed under Cr. 1 171-BEN. SBEE, assisted by engineering consultants, was to be responsible for implementation of the urban water supply component and the management support program. Detailed designs and tender documents for the urban water supply component were under preparation and were expected to be ready during the Summer of 1986. Construction was scheduled to start by late 1987 and extend through the end of 1992 with possible extension until mid 1993. The labor intensive pilot operation for public works (which was added to the project description in August 1990) was the responsibility of an independent implementing agency to be established. 11. There was a clear conceptual foundation for the project which, with the exception of the Management Support Program (MSP), was shared and understood by all parties and was well prepared, with the role and responsibilities of the implementing agency clearly defined and understood. The project was a standard one, the only innovative parts being the social connections and the labor intensive works introduced in 1990. In retrospect, the scope and scale of the project, which appeared appropriate in light of its objectives, was too ambitious, not only for the MSP and the working capital (spare parts) component, but also for the water supply facilities in Cotonou since water demand in that area did not increase as forecast. The aspect of project design and organization that contributed most to its successes was that SBEE was its own master for all implementation activities including disbursements, and that within SBEE the director of works (Water) was in charge. The latter point turned out to be very good for the physical investments, but not for the other components and, therefore, contributed also to the project failures. Another aspect of the project that contributed to its failures was the fact that a water project was not the right vehicle to reorganize an enterprise that is 85 percent electricity and only 15 percent water. E. PROJECT IMPLEMENTATION Credit Effectiveness and Project Start-up 12. Although the credit was approved on June 30, 1986, it was signed only on June 29, 1987 because of difficulties in finalizing the financing plan; one cofinancier (IDB) withdrew, and had to be replaced by another one (EIB). Additional conditions of effectiveness included the adoption by Government of the "General Regulations" for the water operations, the introduction of the entire water tariff structure and the first adjustment of water tariffs provided for in an annex to those regulations, the signing of the subsidiary loan agreement between Government and SBEE, and the effectiveness of the CCCE, EIB and OPEC Fund loan agreements. The credit was made effective on March 25, 1988.  5 13. The delay in credit effectiveness did not mean that all that time was lost for project implementation. During that period, the Bank fielded two supervision missions, and the Borrower started the bidding process and employed a consulting firm for the supervision of works. Implementation Schedule 14. The expansion of water supply facilities in Cotonou and Porto Novo has been well implemented. SBEE called for bids by late June 1987, and, despite some delays with its award recommendations, contracted for basically all the works in accordance with the original schedule. By early 1991, all physical works for the water systems with the exception of the reservoirs were practically complete. The reservoirs, which were financed by the OPEC Fund, were delayed because of a suspension of disbursements due to Benin's arrears to the OPEC Fund. SBEE implemented another program for the extension of the tertiary systems and an additional 10,000 social connections, over and above the 11,500 already done. The basic facilities became operational by August 1992, and are functioning well and are well maintained. Compared with the SAR estimates which are shown between brackets, the completed works consisted of nine (ten) new boreholes ; extension of two (two) existing neutralization plants and construction of a new one (one); construction of four (three) and rehabilitation of one (three) storage service reservoirs; supply and laying of 25 (23) km of feeders and 332 (275) km of distribution pipes; and installation of 21,500 (11,500) domestic connections. Apart from SBEE's headquarters building which was completed in June 1990, the Management Support Program (MSP) designed to strengthen SBEE's management capability was essentially not implemented. During the project period, with financing provided under another IDA-financed project, the focus was on the problem of computerizing the billing and accounting systems of SBEE, which was considered a prerequisite for the improvement of financial and commercial management. Those efforts were not successful. Recommendations of external consultants for reorganizing SBEE--including a major study financed under Credit 2284-BEN (Power Rehabilitation Project of 1990)--were not implemented due to the management conflicts within SBEE and the conflicts between SBEE and the supervising Ministry. Only about half of the amount allocated for the replenishment of SBEE's working capital was used. 15. The labor intensive pilot operation for public works was successfully implemented in a reasonable time, with most of the proceeds of the IDA credit allocated to that component disbursed in about two years. Since on the technical side a lot of preparatory work had been done previously, this new component could start quickly once the Government and IDA agreed on the institutional setup and the implementation arrangements. AGETUR (Agence d'Execution des Travaux Urbains) was created, and an agreement was signed between AGETUR and SBEE, in October 1990. Initial problems with the management of AGETUR, the overlapping of responsibilities and lack of communication between SBEE and AGETUR were satisfactorily resolved at an early stage. AGETUR benefited from short-term external technical assistance and was able to use local consultants for the detailed engineering and the bidding process, as well as the supervision of the individual sub projects. The completed works consisted of about 2.5 km of street paving with concrete cement blocks, 10 km of drains and 6 bridges for pedestrians. The achievement of the objective of promoting the development of small scale contractors was facilitated by the work of CEPEPE (Centre pour la Promotion de lEmploi et de la Petite et AMfoyenne Enfreprise), under a UNDP project which consisted of technical assistance to small and medium scale enterprises but included also a fund for helping enterprises to provide a performance security under their civil works contracts. Because of its success, the pilot operation had a catalytic  6 effect and AGETUR was able to mobilize substantial financing from other donors for activities outside the project scope. 16. rhe most critical variances between planned and actual project implementation were the social water connections, the Management Support Program (MSP), the working capital replenishment and the introduction of the pilot operation for public works as a new component. The variances regarding the water connections, the working capital (which was not needed because of the good cash flow for the electricity side of the business) and the pilot operation (which was considered by IDA a good addition to the project) are essentially good things. Regarding the MSP which involved two cofinanciers, the variance could have been avoided only by ensuring that the design of the component reflected what Government and SBEE were interested in doing and, therefore, were committed to it, or if IDA had been prepared to exercise its leverage (by suspending disbursements for example) to force SBEE to implement the project as appraised. In retrospect, it may have been a good thing that SBEE did not want to use long-term technical assistance, but it should have certainly benefited from short-term expertise in a number of areas. With hindsight, the project risks were not correctly identified at appraisal; the main risks turned out to be the budgetary problems and government arrears, the difficulty of making the compensation of cross-debts work and the unwillingness of SBEE to strengthen its management capability, its accounting and its financial performance. Factors that affected project implementation and that could not have been foreseen were the political crisis of 1988/1990 and the closing of a number of industrial and commercial enterprises which reduced water sales and SBEE's revenues. The change of SBEE's General Manager in June 1990 is one of the decisions taken that most affected project implementation; internal conflicts within SBEE, and conflicts between SBEE and its supervisory ministry also affected project implementation. Regarding the pilot operation for civil works, the fact that IDA stood firm and intervened quickly to resolve the problems that arose at the beginning contributed to the success of this particular project component. Procurement 17. Initially, procurement has been slow, but SBEE complied with IDA guidelines. The bidding of the computer system (managed under this project but financed by Credit 1507-BEN) encountered considerable delays and did not lead to an award recommendation. in hindsight, the combination of the procurement of hardware and software was not an optimal one. Procurement delegated to AGETUR under the labor intensive public works was quite satisfactory and showed substantial reductions in processing time compared to Beninese standards. Project Costs and Financing 18. Excluding interest during construction, the project cost estimate in the Staff Appraisal Report (SAR) was CFAF 11.0 billion. Following changes in cofinanciers and an updating of project costs, the SAR estimate was revised to CFAF 10.6 billion prior to the signing of the IDA credit in June 1987. At CFAF 8.6 billion, the actual project cost was about 20 percent lower than the estimate, despite the addition of the pilot operation for public works which cost about CFAF 0.6 billion. Most of the cost savings are the results of the shortfalls in the SBEE Management Support Program (MSP) and the replenishment of SBEE's working capital, but even the expansion of the water supply facilities in Cotonou and Porto Novo cost about 10 percent less than the revised SAR estimate. It should be noted that, while the rate of exchange between the US dollar and the CFA franc did not change much during the period 1987 to 1993, variations in the rate of exchange between SDRs and US dollars increased the  7 dollar amount available from the IDA credit, part of which was not needed to complete the project. Actual disbursements by external cofinanciers were also less than the revised SAR estimate; on the other hand, the actual contribution of SBEE exceeded the estimate by almost CFAF 0.6 billion (or about 40 percent), an increase shared equally between the expansion of water supply facilities and interest during construction. Disbursements and Credit Allocation 19. The cumulative estimated and actual disbursements of the credit are given in Table 3 of Part III. The six years disbursement forecast of the SAR turned out to be realistic. Because of an increase in the value of the SDR in dollars, disbursements in SDRs represented 88 percent of the credit, whereas the same disbursements expressed in US dollars equivalent were equal to 103 percent of the US dollars equivalent amount of the IDA credit shown in the Staff Appraisal Report (SAR). The allocation of the proceeds of the credit was amended three times to reflect the addition of a new component and changes in financing requirements. Disbursements of the IDA credit were (a) more than estimated at appraisal for SBEE's Headquarters and, of course, the pilot operation for public works, (b) less for the equipment for water supply facilities, spare parts and the Management Support Program (MSP) and (c) about the same for the supervision of construction of the water supply facilities. The credit was closed on December 3 1, 1993 as scheduled, and the last disbursement was on March 11, 1994. A balance of SDR 1,024,344.77 was canceled effective March 11,1994. F. PROJECT RESULTS 20. SBEE implemented the expansion of water supply facilities in Cotonou and Porto Novo on time and within budget, and the project achieved its physical objectives of increasing the availability and quality of water and the number of people served. SBEE has been able to meet water demand which, in any event, did not increase as much as forecast. Actually there has been a dramatic increase (by about 130 percent) in domestic connections which were made more affordable. The number of additional connections was about two and a half times the SAR estimate. Therefore, although there is no figure available on the population served, the additional number of people served through the new domestic connections and through the neighborhood vendors is likely to be close to the appraisal estimate of 640,000. 21. The Management Support Program (MSP) was intended to enhance SBEE's operational resources and allow for a manpower redeployment. Basically, the MSP was not implemented and, therefore, the expected results did not materialize with the exception of staff productivity ( as measured by the number of customers per staff member) which has improved significantly. Receivables for water did not decrease but increased instead to the equivalent of 14 months' billings at the end of 1993. The government cash flow situation was more favorable than expected, not in the manner it was intended, but because Government did not pay its bills to SBEE. Tariffs were not adjusted to reflect long-term marginal costs. The covenanted internal financial rates of return were achieved for SBEE as a whole (excepted in 1991 and 1992) but were not achieved for the water supply activities from 1991 onwards,. The actual economic rate of return is estimated to be slightly higher than zero, to be compared to the SAR estimate of 15 percent. The overall achievement of the project in terms of institutional development was therefore negligible, and the financial viability of the urban water supply sector has not improved. For 1993, SBEE had a rate of return of 4.3 percent and an operating ratio of 90 percent for its overall operations, compared with SAR estimates of 9.1 percent and 73 percent, respectively. The variances  8 between the appraisal and completion economic and financial rates of return can be explained by the lack of pressure on the financial side and the political and economic crisis. Water operations have continued to be subsidized by the profitable electricity operations, and there has been no incentive for SBEE to adjust water tariffs. Because of the economic crisis, some major commercial consumers (port, brewery, textile company, etc.) reduced their consumption by as much as 50 percent, and SBEE could not reap the full benefits of the additional water available. In 1993, water sales were CFAF 1.9 billion, compared with the SAR estimate of CFAF 6.1 billion. 22. With the addition in August 1990 of the labor intensive pilot operation for public works, the project objectives changed during implementation to include also the promotion of the development of small scale contractors. This component has been very successful. Following local competitive bidding, a large number of small contractors, including some that had experience only in housing construction, were awarded contracts for labor intensive street paving and carried them out satisfactorily. The pilot operation has demonstrated that, given the right institutional setup, management and procedures, an appropriate technology (concrete cement blocks) and with local consultants and short-term external technical assistance, it is possible to award contracts for labor intensive works to small contractors, to have the works supervised properly and carried out satisfactorily and to have the contractors paid promptly, all of this within a reasonable time frame and at a reasonable cost. Impact of Project 23 The project had a favorable impact on the macro and sector growth and policies, and on the physical and social environment. With the additional domestic connections, the rehabilitation and cleaning of open drains and the paving of streets, a greater number of people have an easier access to water of a better quality and enjoy improved sanitary conditions. The project reinforced an existing trend with the further development of the system of neighborhood vendors (with adequate competition and at a reasonable price) and the disappearance of public standpipes. The improvement in the physical environment, however, is endangered by the uncontrolled urban development in the perimeter of protection of the aquifer. The pilot operation had also a favorable impact on the technological environment with the demonstration that housing contractors could undertake other kinds of cost effective, labor intensive works. However, the project did not achieve two of its main objectives, namely the strengthening of SBEE's management and the improvement of the financial viability of the water supply sector and the overall outcome of the project is not satisfactory. G. PROJECT SUSTAINABILITY 24. Despite the serious shortcomings on the institutional development side, the project is likely to maintain an acceptable level of net benefits throughout its economic life, particularly in view of the resumption of growth observed in Benin since 1992 and reinforced by the devaluation of the CFA Franc. The problem of the pollution of the aquifer is being addressed by an urban project and an environmental project financed by IDA. The success of the pilot operation for public works enabled Government to mobilize substantial additional funds from other donors for those types of labor intensive works, which have also been included on a larger scale in the urban project. The overall impact of the project in terms of sustainability is therefore satisfactory.  9 H. BANK PERFORMANCE 25. The strengths of IDA's performance on this project have been the quality of project preparation, IDA support to the implementation of the expansion of water supply facilities, staff continuity and the flexibility that IDA has shown during project implementation to modify the project objectives and description and reallocate the proceeds of the IDA credit. The amendment to the credit agreement to add to the project the pilot operation for public works was approved by the Country Director with a minimum of paper work. Although one could argue that this addition was a cnange sufficiently major to be submitted to the Board for approval on a no objection basis, the fact remains that IDA responded very quickly to a government request for assistance to alleviate the hardship of the adjustment program, promote the development of small contractors and provide relief for the unemployed as well as improving the sanitary environment. The new component turned out to be very successful not only in itself, but also as laying the foundation for a comprehensive urban project. The main weakness of IDA's performance was its inability or unwillingness to insist on the implementation of the Management Support Program (MSP), or at least that something be done to improve SBEE's accounting and financial and commercial management. During project implementation, IDA focused on the problem of computerizing the billing and accounting systems of SBEE, but without results. Granted that in the final analysis SBEE was not interested in substantial long-term technical assistance, the component could have been redesigned so that SBEE would reform itself with some short-term technical assistance, as required. In addition to threatening to suspend disbursements for this project, IDA could have used the leverage of the new power project with SBEE. In the end, IDA declined to extend the closing date of the credit as a late recognition that the performance of government and SBEE was not satisfactory. Also, IDA allocated insufficient resources to supervision (80 SW over the project implementation period, not unusually low for the time but still inadequate). The project was not supervised enough (particularly immediately after the 1987 reorganization of the Bank), and with the absence of participation by a financial analyst since the Fall of 1987 the skill mix was not the most appropriate for a project with a revenue earning entity. The main lesson of experience that may be relevant to other IDA-financed projects is that, in order for project's objectives to be achieved, special efforts need to be made to ensure that all components are implemented ( as redesigned if needed) and to enforce compliance with covenants. I. BORROWER PERFORMANCE 26. The performance of the Government and SBEE on this project has been mixed. With continuity in staffing and in the employment of consultants (with maybe too much delegation of responsibility to consultants), the performance of SBEE from a purely technical point of view for the design and construction of water supply facilities has been good. On the other hand, the performance of SBEE has been rather satisfactory for procurement, mediocre for financial management and poor for commercial operations. Obviously, the political crisis of 1988-1990 and the change of General Manager did not help. But those events are not an excuse for neglecting some important components of the project, or for not complying with many covenants, or complying with them only partially. The Government could have done a better job to implement the provisions of the enterprise contract (including payments of bills and settlement of arrears) which did not work at all, and SBEE to improve its data processing, accounting, and billing and collection operations. Year after year, SBEE systematically ignored the recommendations of the auditor aimed at improving the presentation of the accounts and the systems of internal control.  lo The implementation of those recommendations would not have cost much, and in any event there was plenty of financing available from IDA and two other donors, which could have been used for that purpose and to implement the most crucial part of the Management Support Program (MSP). The main lesson of experience for the Borrower that may be relevant to the preparation and implementation of other projects is that, for a project with a revenue earning entity, good technical performance is not enough, but that there is also a need for good financial and commercial performance. The performance of Government for the pilot operation for public works (which did not require a government contribution and did not involve the difficult problems of settlement of arrears and payment of bills to a public utility) was good. J. PROJECT RELATIONSHIP 27. The rather poor performance of Government on budgetary allocations and payments of bills for water created the usual problems with the Ministry of Finance, and there have been conflicts at times between SBEE and its supervising ministry (Ministere de Tutelle) with a tendency on the part of SBEE to use IDA as an umbrella against the ministry. Coordination could have been done better by all concerned, including Government, as demonstrated by the development of secondary centers financed by another donor. IDA relationship with cofinanciers has generally been good, although one of them failed to notify IDA (for as long as one year) that it had suspended disbursements on its loan. On balance, however, the IDA relationship with Government, SBEE and cofinanciers is judged to have been satisfactory. K. CONSULTING SERVICES 28. Consultants played an important role in project implementation. To some extent, they may have been too much involved in project management, but their performance was good. Not much was done for training, mostly because there does not seem to have been any desire on the part of SBEE staff to be trained. The performance of contractors and suppliers has been satisfactory. The contractor for the reservoirs interrupted its work but for a valid reason: he was not being paid because of the suspension of disbursements of the OPEC Fund on its loan due to Government arrears to the Fund. L. PROJECT DOCUMENTATION AND DATA 29. The Staff Appraisal Report, the President's Report, the Development Credit Agreement, the Project Agreement and supplemental letter, and the working papers prepared prior to project approval were an adequate documentation for the implementation and supervision of the project. Because progress reports were incomplete, all the data relevant to the preparation of the PCR were not readily available. M. CONCLUSIONS AND LESSONS LEARNED 30. The overall outcome of the project is judged to have been unsatisfactory, despite the fact that the project achieved its physical objectives of increasing the availability and quality of water and the number of people served. The financial viability of the urban water supply sector has not improved., nor the  11 management capacities of SBEE. The labor intensive pilot operation for public works achieved its objective of promoting the development of small scale contractors. On balance, the sustainability of the project is likely. 31. A number of lessons, some of them obvious and not unique to this project, can be drawn from the experience with the project: (a) The objective of increasing the availability and quality of water and the number of people served can be achieved with good project preparation and supervision by the implementing agency, and with adequate incentives to increase the number of water connections. (b) A policy of encouraging domestic connections and the development of a system of neighborhood vendors can be very successful to eliminate public standpipes, which are usually a source of arrears. (c) Good technical performance is not enough for a project with a revenue earning entity, but there is also a need for good financial and commercial performance. (d) In order for the objectives of a project to be achieved, special efforts need to be made (including adequate supervision by IDA with the appropriate skill mix, and the use by IDA of all available leverage) to ensure that all components are implemented (as redesigned if needed) and to enforce compliance with covenants. (e) The labor intensive public works have demonstrated that, with proper training and supervision, and appropriate technology, housing contractors can undertake urban road rehabilitation and construction, and that it is possible to award contracts to small contractors, to have the works supervised properly and carried out satisfactorily and to have the contractors paid promptly, all of this within a reasonable time frame and at a reasonable cost.  12 PROJECT COMPLETION REPORT BENIN SECOND WATER SUPPLY PROJECT (CREDIT 1721 - BEN) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE A. GENERAL COMMENTS 1. Contractors' Performance. The contractual dates for completing the works were generally complied with. The only problem encountered during the project's execution was the water tightness defects recorded in the elevated reservoirs of Akpakpa (R3) and Abomey-Calavi (R5). This problem was rapidly mastered without any harm to the operation of the water systems of Cotonou and Abomey-Calavi. 2. Consultants' Performance. Consultants and architect's services were very satisfactorily carried out. All experts assigned to the project were up to their tasks. 3. Project Unit Performance. The activities of the Project Unit were carried out in accordance with the agreed program and, above all, adequately coordinated with the consultants' activities. 4. Project's Results. The project allowed to increase the capacity of water production facilities in Cotonou and Porto-Novo. The gap between the expected and actual production figures observed in 1993 (26.6 millions m3 expected to be produced compared to an actual production of 14.8 millions m3) is attributable to the major socioeconomic and political crisis experienced in Benin between 1988 and 1991, which translated in the almost general suspension of the main economic activities of the country. Large undertakings such as the Port of Cotonou, breweries, edible oil and soap industries, hotels and medium and small enterprises greatly reduced their water consumption. The resumption of activity of those units has been slow. In addition, the erratic payment of civil servants' wages seriously disturbed domestic water consumption. The once flourishing informal sector also faced dire straits that decreased revenues thus forcing households to reduce their water consumption and even to renounce to be served by SBEE. Fortunately, the social connections program executed under the project allowed to partly offset the decrease of consumption. 5. External Constraints. The enterprise contract signed in 1986 by the Government and SBEE set up the respective objectives of the two parties; it has not been fully complied with, as: (a) the above-mentioned socioeconomic and political crisis denied the opportunity for SBEE to propose revisions of water tariffs (as well as of electricity tariffs); and  13 (b) the collection of Government's bills did not reach the targets specified in the enterprise contract. Those two exogenous factors, among many others that it would be tedious to list, have impaired the results of the project. 6. Improvement of SBEE's management. The assistance to be provided to SBEE under the project to improve its management was not delivered. Following IDA's request, the funds allocated to the TA component were reallocated to labor-intensive public works. The absence of that important component has seriously hampered the financial and commercial performances. 7. Donors' Supervision Missions. The successive missions were candid and constructive and somewhat helped SBEE to improve its services from a commercial, technical and financial point of view. B. CONCLUSIONS Generally speaking, the physical components executed under the project were carried out satisfactorily and in accordance with standards. Although various financial targets were not met, the project had a very interesting impact not only on SBEE but also on the Beninese economy as a whole. The project allowed to sensitize further SBEE to the important issues related to cost recovery, commercial management and financial equilibrium. The project helped the staff of the PU team capitalize a significant knowledge of design, supervision and control and institutional aspects--in summary of all tasks related to the execution and supervision of a project. The project allowed many local contractors to benefit from the experience of larger companies that were awarded contracts (transfer of know-how). The project has had a very important socioeconomic impact and health impact that deserves to be highlighted: (a) the physical works related to water supply and the labor-intensive works created employment and supported the emergence of small and medium contractors, dynamic and able to organize themselves; (b) the supply of safe water to poor neighborhoods with high density of population contributed significantly to improve the social and sanitary conditions of the population, which particularly translated in the reduction of water-borne diseases, and (c) the labor-intensive urban works have greatly improved the urban environment of Cotonou and Porto-Novo.  14 Finally, the project was instrumental in launching the ongoing water tariffs study, the report of which should be available by the end of 1994. The recommendations of this study would allow to bill water in line with its actual costs. When looking farther in the future, the project certainly provided the building blocks of a new development effort, but there are still several outstanding issues that must be addressed in the next two years to keep the poise of the sector in the immediate future; the issues are as follows: (a) the frequent bursts of asbestos pipes which cripple water distribution in the largest cities; those pipes--with diameters ranging from 90 mm to 500 mm--should be systematically replaced; (b) the renewal of the water production plant of Vedoko in Cotonou where several pieces of equipment are wearing down, (c) the siltation of the dam which provides the only source of supply to the city of Djougou, and (d) the low densification of distribution networks in almost all secondary centers. It would be appropriate for IDA and SBEE to jointly address the above issues by preparing and financing quickly a new project.  15 PROJECT COMPLETION REPORT BENIN SECOND WATER SUPPLY PROJECT (CREDIT 1721 - BEN) PART III: STATISTICAL INFORMATION  16 1. Related IDA Credits Project Title/ Purpose Year of Status Comments Credit Number Approval Engineering Project To provide relief to 1981 Completed Satisfactorily completed regarding the (Cr. 1171-BEN) the most urgent 1987 water supply part, but less so for the water and sanitation sanitation and urban aspects. needs in Cotonou and to finance studies to examine long-term solutions for Cotonou's water, sanitation and urban problems. Power Rehabilitation To support the 1990 Ongoing The project, which took a vear from board Project institutional date to effectiveness. was also slow to start (Cr. 2284-BEN) strengthening of mainly due to some procurement issues SBEE, and to help which have now been resolved. The meet increased project is beginning to achieve its physical demand for targets. electricity by rehabilitating and extending Cotonou, Porto Novo, and Abonicy/Bohicon distribution systems.  ' 7 2. Project Timetable Item Timetable Date Revised Date Actual Identification Dec 83 Preparation _ Jun & Nov 84 Executive Project Summary Jan 28, 85 A_p!aisal Mission Apr 85 Apr/May 85 Credit Negotiations Dec 85 Mar 86 May 86 Board Approval Apr 86 Jul 86 Jun 30, 86 Credit Signature _ Apr 86 Jul 86 Jun 29, 87 Credit Effectiveness Oct 87 Jan 88 Mar 25, 88 Credit Closing Dec 31, 93 Dec 31, 93 3. Credit Disbursements  18 Cumulative estimated and actual disbursements (US$ million) Fiscal Year 1987 1988 1989 1990 1991 1992 1993 1994 Appraisal 0.20 2.04 5.43 7.69 8.98 9.67 10.00 10.00 Estimate Actual 0 0.3 1.7 3.9 7.3 9.2 10.5 10.3 Actual as % 0% 15% 31% 51% 81% 95% 105% 103% of estimate Note: Because of an increase in the value of the SDR in dollars since the signing of the IDA credit, the available IDA financing represented more dollars than the amount estimated at appraisal, despite the fact that SDR1.02 million was canceled. 4. Project Implementation Indicators Planned Actual or PCR Estimates (Implementation Program of Schedule 2 to Project Date Agreement) SBEE to monitor the technical, administrative and SBEE has monitored its operations, but the financial results of its operations in accordance with Continuous submission of reports has been usually late. monitoring indicators, and within six months after end of year furnish annual report to Association.  19 SBEE to prepare annually a list of spare parts to be By purchased during the following year, together with November Lists have been prepared. their estimated cost and method of procurement, and to 30 of each submit list to Association. year SBEE to make annual adjustments in its water tariffs on the basis of a cost index formula acceptable to the Continuous No tariff adjustments were made. Association, and in addition adjustments every three years taking into account SBEE's medium-term cash flow requirements. .  20 5. Project Costs and Financing A. Project Costs and Financing Requirements Revised SAR SAR Actual Estimate Estimate (In CFAF million) Water Supply Facilities in Cotonou and Porto Novo 8,477 7,519 6,771 SBEE Management Support Program 1,444 2,024 721 Replenishment of SBEE's Working Capital 1,067 1,067 556 Public Works Pilot Operation - 590 Total Project Costs 10,988 10,610 8,638 Interest during Construction 892 921 1,207 Total Financing Requirements 11,880 11,531 _ 9,845 Note: Following changes in cofinanciers and an updating of project costs, the SAR estimates were revised and the legal documents amended prior to the signing of the IDA credit in June 1987. The new component "Public Works Pilot Operation" was added in August 1990. B. Project Financing Plan l Revised SAR SAR Actual Estimate Estimate (In CFAF Million) IDA 3,600 3,412 2,443 CCCE 3,600 3,563 2,850 IDB 1,620 - - EIB - 2,218 1,790 OPEC Fund 972 851 693 SBEE 2,088 1.487 2,069 Total Financing 11,880 i 11,531 9,845  21 6. Project Results Indicators Appraisal Estimates PCR Estimates (As of, or for year ended (Most recent information 12/31/93) available) Availability and quality of Additional water supply facilities SBEE has been able to meet water to allow SBEE to meet demand demand (which has not through 1994, and rehabilitation increased as much as forecast), and expansion of neutralization and water quality has improved plants to improve water quality and pipe corrosion has been and reduce pipe corrosion. reduced. Decrease in accounts Increased efficiency of SBEE's (i) Receivable did not decrease, receivable and increase in staff operations to be documented but increased, representing 14 productivity, as a result of the through (i) a decrease in months' billing at end of 1993. Management Support Program accounts receivable (from about (MSP) which would enhance 9 months' billing on 12/31/85 to (ii) There is no figure available SBEE's operational resources less than 4 months' billing by on the current number of staff and allow for a manpower re 12/31/87)and (ii) an increase in members for water supply. deployment. staff productivity (from 1 staff However, since total personnel member for 41 customers on did not increase during the 12/31/85 to 1 staff member for project, it is most likely that staff 48 customers on 12/31/89, productivity has increased according to the first Enterprise significantly. i____________________________ Contract). Domestic Connections and (i) Installation of about 11,500 (ii) Between the end of 1987 and number of people served. One small domestic connections. the end of 1993, the number of of the main goals of the project connections has increased by was to promote domestic 27,600, from about 20,900 to connections and make them about 48,500 (a 132% increase). more affordable in order to (ii) An additional 227,000 (ii) No figures available. improve the sanitary conditions people to be provided with and enlarge SBEE's revenue domestic connections, and an base by increasing water sales. additional 413,000 people to be served through neighborhood vendors. Affordability New tariff structure to include Social tranche has remained at social tranche of CFAF 100/m3 CFAF 100/m3 in current CFA for the first 10m3 per month, Francs. expected to remain constant in real terms.  22 Indicators Appraisal Estimates PCR Estimates (As of, or for year ended (Most recent information 12/31 93) available) Average Incremental Costs Tariff charged for the upper Tariffs were not adjusted to (AIC) block (more than 25m3 per reflect long-term marginal costs. month) to compare with sector- wide AIC, estimated at CFAF 234/m3 in 1986. Economic Rate of Return About 15%. In the absence of cost (ERR) of project accounting and separate accounts for water, the actual ERR cannot be calculated precisely. A rough calculation shows a slightly positive ERR. Government cash flow From onlending of the IDA No detailed information situation credit, and possibly of other available. Situation was most cofinanciers loans to SBEE, and likely favorable because from payments of corporate government did not pay its bills taxes and dividends, SBEE to SBEE. would pay to government a total CFAF 7 billion over the period 1987-1994. Internal Financial Rate of SBEE to generate Return (i) a positive internal rate of (i) for the 1988/90 period return for its overall operations overall rate of return has been for the years 1988, 1989, and positive (it has varied between 1990; and 3.4% and 4.6%); (ii) from 1991 onwards an (ii) Although no detailed internal rate of return of at least information is available because 2.5% for its water operations of the absence of separate alone, and an internal rate of accounts for water, the rate of return of at least 4.5% for its return for water has most likely overall operations. been negative. Overall rate of return has been -2.0% for 1991, 3.7% for 1992 and 4.3% for 1993. Promotion of the development Following competitive bidding, a of small scale contractors large number of small through a labor intensive public contractors have been awarded works operation. contracts for mostly labor intensive street paving and have carried them out satisfactorily.  23 7. Status of Covenants Section in Subject Deadline for Status Credit compliance Agreement 3.01(a) Borrower's commitment to objectives Continuous Unsatisfactory. Borrower has not caused of the Project; Borrower to cause SBEE, and has not taken all action SBEE to perform in accordance with necessary or appropriate to enable SBEE, the provisions of the Project to perform its obligations under the Project Agreement all its obligations under Agreement. that agreement, and to take and cause to be taken all action, including the provisions of funds, facilities, services and other resources necessary or appropriate to enable SBEE to perform such obligations. 3.01(b) Borrower to make proceeds of the Condition of Complied with. credit available to SBEE partly as effectiveness grant (for spare parts and pilot urban works) and partly as a loan (for the balance of the Project) under a subsidiary loan agreement with terms and conditions approved by the Association. 3.02 Procurement Continuous Some delays were encountered in contract awards and the bidding for SBEE's computer system was inconclusive. Procurement delegated to AGETUR was quite expeditious and satisfactory. 3.04 Borrower to establish and, November 1, 1990 Complied with. thereafter, maintain with qualified staff in adequate number, all satisfactory to the Association, an independent implementing agency to supervise the execution of the labor intensive pilot operation for public works.  24 Section in Credit Subject Deadline for Status Agreement compliance 4.01(a) Borrower to provide in its annual Continuous Partially complied with. Amounts national budget amounts sufficient to provided in budgets were insufficient and cover the electricity and water in any event government, local consumption costs of its ministries collectivities and autonomous agencies did and agencies, and to ensure that not pay. local collectivities and other autonomous agencies provide in their respective budgets amounts sufficient to cover their own electricity and water consumption costs. 4.01 (b) Amounts referred to in 4.01(a) to be Continuous Complied with. determined by Borrower, local collectivities and other autonomous agencies in collaboration with SBEE and, thereafter, reviewed by the Association not later than September 30 of each year. .- 4.02 Borrower to perform all its Continuous Not complied with. obligations under the Enterprise Contract with due diligence and efficiency, and to cause SBEE to perform all its obligations under such contract. Section in Deadline for Project Subject Compliance Status Agreement 2.01(a) SBEE's commitment to the Continuous SBEE was not committed to all the objectives of the Project; SBEE to objectives of the project, and carried out carry out the project with due with reasonable diligence and efficiency diligence and efficiency, and in the physical facilities only. There has been conformity with appropriate no problem with the provision of funds, administrative, public utility, facilities, services and other resources for financial and engineering practices, the Project. and to provide or cause to be provided the funds, facilities, services and other resources required.  25 Section in Project Subject Deadline for Status Agreement compliance 2.01(b) Operation of Special Account. Continuous Satisfactory. 2.01(c) SBEE to monitor operations, to Continuous Complied with, with the exception of tariff prepare annually a list of spare parts adjustments. to be purchased, to make annual adjustments in its water tariffs on basis of a cost index formula, and to adjust tariffs every three years taking into account its medium- term cash flow requirements. Rather satisfactory (see comments under 2.02 Procurement Continuous Section 3.02 of the credit agreement). 3.01 (a) SBEE to carry on its operations and Continuous Unsatisfactory. SBEE has not conducted to conduct its affairs in accordance its affairs in accordance with sound with sound administrative, financial, commercial and public utilities financial, commercial, engineering practices. It failed to improve both its and public utilities practices and in commercial function and its cost and accordance with its Reglement managerial accounting. Receivable General de la Distribution d'Eau en increased sharply. zone urbaine, under the supervision of qualified and experienced management assisted by competent staff in adequate numbers, and to perform all its obligations under the Enterprise Contract with due diligence and efficiency. SBEE to establish and thereafter 3.01 (b) maintain a new decentralized Dec 31, 1989 Not complied with. management structure satisfactory to the Association. 3.01 (c) SBEE to promote a commercial Complied with. Program was very policy whereby small household Continuous successfully implemented with installation consumers shall be provided with of about 21,500 small domestic low cost house connections partly connections, compared to the appraisal subsidized by SBEE's water tariffs. estimate of 11,500. 3.01 (d) SBEE to assist Government and public entities in determining Continuous Complied with adequate budget appropriations for power and water bills. 4.01 (a) SBEE to maintain records and Complied with, although SBEE has not accounts to reflect in accordance Continuous been able to establish separate accounts for with sound accounting practices its water and electricity and to introduce cost operations and financial condition. accounting.  26 Section in Project Subject Deadline for Status Agreement Compliance 4.01 (b) & (c) Audit reports have been submitted with SBEE to have its accounts and By August 31 of delays (sometimes sizable ones) as follows: financial statements, and the each year, for the for 1989: in Oct 90 Special Account, audited annually, preceding year. for 1990: in Feb 92 and to furnish audit reports to the for 1991: in Aug 92 Association. for 1992 in Aug 93 for 1993: not yet submitted 4.02 SBEE to submit each year for review operating and capital By November 30 SBEE submitted its budgets, usually with budgets for the next year, and of each year delays, but not the financial projections for financial projections for the next the next three years. three years. 4.03 Until Dec 31, 1993, SBEE not to undertake, without prior Continuous Complied with consultation with IDA, any investment in the urban water supply and sewerage sector in an aggregate estimated amount of more than CFAF 500 million. 4.04 SBEE to maintain billing and collection procedures in order to Dec 31, 1987 Never complied with. At the end of 1993, reduce and thereafter keep water total receivables represented 14 months' supply and electricity receivables billings. from private and parastatal consumers to a maximum of four months' billing. 4.05 SBEE not to incur any debt unless its annual net revenues exceed 1.5 Continuous Complied with. times its estimated maximum debt service requirements for any succeeding year on all debt. 4.06 (a) (i) SBEE to earn a positive rate of (i) Complied with. return for 1988, 1989 and 1990. Continuous (ii) For 1991 and any succeeding (ii) Not complied with. Water operations year, SBEE to earn returns of 2.5% are still subsidized by electricity operations. on its water supply assets and 4.5% on all its assets. Section in General Subject Deadline for Status Conditions Compliance (i) Progress Reports (i) Continuous (i) Partially complied with; reports have 9.06 been incomplete and submitted with delays. (ii) Completion Report (ii) June 30, 1994 (ii) Borrower submitted Part II in October 1994. Supplemental Subject Deadline for Status letter I_I compliance I_I  27 Number 1 Preference for domestic contractors. Continuous Complied with. Criteria for classification of domestic contractors eligible for such preference.  28 8. Use of Bank Resources A. Staff Inputs (in Staff-weeks) Stage of Project Cycle Actual Through Appraisal 32.3 Appraisal through Board Approval 61.5 Board Approval through Effectiveness 25.8 Supervision 79.6 Total 199.2 B. Missions Stage of Month/ No. of Days Specializations Performance 1 Types of Project Cycle Year Persons in represented Rating Problems Field (a) (b) (c) Through Appraisal Identification 12/83 Preparation 6/84 3 10 SE,FA, EC Preparation 11/84 4 10 2 SE, 2 FA Preparation 2-3/85 2 4 SE, FA Appraisal throu h Board Appraisal 4-5/85 5 19 2SE, 2FA, EC l _l Follow-up 10/85 1 5 SE l _l Board approval through effe ctiveness Supervision 1 6/87 1 8 SE Supervision 2 10/87 1 8 FA 1  29 8. Use of Bank Resources B. Missions (conti nued) Stage of Month/ No. of Days Specializations Performance Types of Project Cycle Year persons in Represented Rating Problems Field (a) (b) (c) Supervision _ Supervision 3 9/88 2 10 SE, EC Supervision 4 5/90 2 10 SE, EC 1 PP, CLC SMD, SE, LEG, Supervision 5 9/90 5 18 ENV, UP Supervision 6 4/91 2 14 SE, UP I CLC, PP PDO, CLC Supervision 7 2/92 2 14 SEC, SE 2 PNI, FP PDO,CLC, Supervision 8 6/92 2 10 SEC, SE 2 PMP, FP PDO, CLC, Supervision 9 4/93 2 12 SEC, SE 2 PMP, FP , PDO, CLC, Supervision 10 11/93 2 16 SEC, SE 3 PMP, PP, _ _ _ _ _ _ _ _ _ _ _ _ _ _ F P PDO, CLC, Supervision 1 1 6-7/94 2 10 SEC, SE 3 PMP, PP, _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I I__ _ I__ _ _ _ _ _ I__ _ _ _ F P (a) Specializations represented: EC Economist ENV Environmentalist FA Financial Analyst LEG Legal SE Sanitary Engineer SEC Senior Economist SMD Specialist Municipal Dev. UP Urban Planner (b) Key to Performance Rating Status 1 = Problem Free 2 = Moderate Problems 3 = Major Problems (c) Types of Problems: CLC Compliance with Legal Covenants FP Financial Performance PDO: Project Development Objectives PMP: Project Management Performance PP Procurement Progress  30 ANNEX 1- WATER PRODUCTION AND SALES- 1987/1993 1987 1988 1989 1990 1991 1992 1993 l Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Water 14.50 11.78 17.20 12.37 18.70 11.76 21.80 12.45 23.50 12.30 25.10 13.74 26.60 14.84 Production Mfillion m 3__ _ ___ _ _ _ __ _ _ _ __ _ _ _ __ _ _ _ _ _ _ _ Water Sales 10.81 9.88 12.79 8.53 14.12 8.71 16.38 9.86 17.67 9.41 18.90 10.32 20.00 11.25 |Million m3 3 Efficiency % 75 84 74 69 76 74 75 79 75 77 75 75 75 76 New 1,470 1,480 3,520 3,515 2,525 8,793 3,625 2,474 3,410 4,515 2,855 2,429 3,275 5,890 Connections I Total 22,220 20,879 25,740 24,393 28,265 33,186 31,890 35,660 35,300 40,175 38,155 42,604 41,430 48,494 Number of |Connections  31 ANNEX 2 - WATER AND ELECTRICITY SALES-1987/1993 (IN M_OLION CFAF) 1987 1988 1989 1 990 1991 1992 1993 Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Water Sales 1,900 1,391 2,653 1,501 3,163 1,521 3,962 1,637 4,617 1,611 5,334 1,644 6,094 1,860 Works 140 285 280 140 295 130 330 82 325 62 425 112 800 145 (Water) . Electricity 11,753 7,907 13,866 9,221 16,147 8,913 18,796 9,572 21,974 9,979 25,628 10,766 28,296 11,409 Sales I__ _ _ _ _ _ I__ _ _ _ _ __ _ _ _ _ __ _I_ _ _ _ _ _ Works 164 1,191 213 558 229 536 305 366 363 322 381 366 405 374 (Electricity) Other 1,19! 937 1,272 712 1,361 774 1,457 815 1,516 804 1,576 895 1,639 879 Revenues I_I_ _ Total 159148 11,711 18,284 12,132 21,195 11,874 24,850 12,472 28,795 12,778 33,344 13,783 37,234 14,667 Revenues __________- AVERAGE SALES PRICE WATER- CFAF/m3 198 7 1988 199190 19'1 199 2 1993 1 Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast I Actual | Forecast | Actual .___ _ - 176 146 207 168 224 175 242- 166 j 261 173 282 166 _304 166 ELECTRICITY-CFAF/kW 1987 1988 1989 1990 199 1 1992 1993 Forecast Actual Forecast I Actual Forecast I Actual Forecast I Actual Forecast Actual Forecast I Actual Forecast Actual 71_ 1 57 _ 78 1 55 j 84 56 955 - 98 53 106 1 51 108 1 53  32 ANNEX 3 - SUMMARY INCOME STATEMENTS (ACTUAL) (CFAF MIL-ION) 1987 1988 1989 1990 1991 1992 1993 Water Sales (million M3) 9.5 10.2 8.7 9.9 9.4 9.9 11.3 Electricity Sales (million kwh) 137 168 163 175 189 210 216 Average revenue/m3 (francs CFA) 146 148 180 166 171 166 165 Average revenue/kwh (francs CFA) 58 55 56 55 53 51 53 REVENUES Water Sales 1,392 1,501 1,521 1,637 I1,612 1,645 1,861 Electricity Sales 7,908 9,221 9,133 9,573 9,979 10,767 11,406 Works invoiced 1,477 700 668 449 385 479 521 Others 1,957 1,348 2,199 1,650 1,755 2,090 2,266 Sub-Total: operating revenues 12,734 12,770 13,521 13,309 13,731 14,981 16,054 Non-operating revenue 1,079 2,096 2,701 993 261 844 570 TOTAL REVENUES 13,813 14,866 16,222 14,302 13,992 15,825 16,624 EXPENSES Operations 8,212 8,843 8,334 8,407 9,208 10,502 10,717 Provisions 1,937 1,314 1,804 1,554 692 740 814 Depreciation 2,183 2,615 2,824 2,711 2,998 3,002 2,963 Sub-Total: Operating expenses 12,332 12,775 12,962 12,672 12,898 14,244 14,494 Non-Operating expenses 206 528 2,011 361 1,613 230 577 Interest 257 519 379 406 693 758 761 Taxes 681 718 583 590 686 665 706 TOTAL EXPENSES 13,476 14,540 15,935 14,029 15,890 15,897 16,538 Net income after interest & Taxes 337 326 287 273 -1,898 -72 86 Dividends (70%) 236 228 201 191 - 60 RATIOS Working ratio % 64 69 62 63 67 70 67 Operating ratio % 97 100 96 95 93 90 90 Rates of return 4.26 4.59 3.49 3.41 -2.01 3.70 4.25   I ml A G I N 1'; ?ep':rt. tic) 15 -1, 30I Type: PCER