Philippines - Metropolitan Manila Water Distribution Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14293 PROJECT COMPLETION REPORT THE PHILIPPINES METROPOLITAN MANILA WATER DISTRIBUTION PROJECT (LOAN 2676-PH) APRIL 11, 1995 Infrastructure Operations Division Country Department I East Asia and Pacific Regional Office This document has a restricted distribution and may be used by recipients onlv in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Peso -(P) Average used in appraisal estimates (February 1986): US$ = P 18.7 Actual yearly average market values: I/ US$ = P 20.39 (1986) US$ = P 24.31 (1990) = P 20.57 (1987) = P 27.48 (1991) = P 21.09 (1988) = P 25.51 (1992) = P 21.74 (1989) = P 27.12 (1993) FISCAL YEAR January 1 to December 31 WEIGHTS AND MEASURES cu m = Cubic meter (1,000 liters or 264 US gallons) ha = hectare (2.47 acres) km = kilometer (0.62 miles) 1 = liter (0.26 US gallons) 1/cd = liter per capita per day m = meter (1,000 millimeters or 3.28 feet) mm = millimeter Ml = million liters per day ABBREVIATIONS AND ACRONYMS ADB = Asian Development Bank COA = Commission on Audit DPWH = Department of Public Works and Highways ICG = Internal cash generation IDC = Interest during construction IFRR = Financial Internal Rate of Return MCM = Million cubic meters MMWDP = Metropolitan Manila Water Distribution Project MWSP II = Second Manila Water Supply Project MWSRP-I = Manila Water Supply Rehabilitation Project I MWSS = Metropolitan Waterworks and Sewerage System NEDA = National Economic Development Authority NRW = Non revenue water OGCC = Office of the Government Corporate Council SAR = Staff Appraisal Report Average market value (rf) values from "International Financial Statistics" published by the International Monetary Fund.  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation April 11, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on The Philippines Metropolitan Manila Water Distribution Proiect (Loan 2676-PH) Attached is the Project Completion Report on The Philippines - Metropolitan Manila Water Distribution Project (Loan 2676-PH) prepared by the Infrastructure Operations Division, Country Department I of the East Asia and Pacific Regional Office. Part II of the report was contributed by the Borrower, Metropolitan Waterworks and Sewerage System (MWSS) of Manila. The project was the third Bank-funded project for water supply in Manila. It was closely linked with a parallel ADB project aiming at a major reduction of unaccounted-for-water (UFW), estimated at 55 percent at the time. The project focused on maximizing the utilization of the existing production and transmission capacity. The effort included expansion of, and improvements to, the distribution system part of which, about 35 percent of the total cost, was the completion of carry-over works from a preceding project. Technical assistance was provided to strengthen MWSS's financial management. The project underwent several revisions mainly due to increased self funding of distribution extensions requested by MWSS. This resulted in the cancellation of about 45 percent of the loan. The revisions together with numerous procurement and contractor perfornance problems delayed the project by about three years. The project exceeded its target in distribution extensions (including self-funded components), and achieved about 95 percent of the targeted number of service (house) connections. Right-of-way problems experienced in low-income areas caused a major shortfall in the number of "yard tap" connections. As a result, incremental service coverage was at about 70 percent of the projected target. Achievements of the parallel UFW reduction prograrn were minimal. All this slowed down the growth of water sales and the expected full utilization of the existing capacitv did not materialize. The financial situation of MWWS, however, remained healthy; the covenanted RoR requirements of six to eight percent were exceeded. Limited institution building objectives were largely met. The outcome of the project is rated as satisfactory and its institutional development as modest. The sustainability of project benefits is rated as likely. The Project Completion Report gives a thorough review of project implementation and its achievements. Part 1I presents a realistic picture of project results as well as a candid discussion of issues and problems faced. 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 authorizaticn.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT THE PHILIPPINES METROPOLITAN MANILA WATER DISTRIBUTION PROJECT (LOAN 2676-PH) Table of Contents Page No. Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Evaluation Summary . . . . . . . . . . . . . . . . . . . . . . . . . ii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . . . . . Project Identity . . . . . . . . . . . . . . . . . . . . . . . Background . . . . . . . . . . . . . . . . . . . . . . . . .1 Project Objectives and Description . . . . . . . . . . . . . . 2 Objectives . . . . . . . . . . . . . . . . . . . . . . . . 2 Project Description . . . . . . . . . . . . . . . . . . . . 2 Project Organization and Design . . . . . . . . . . . . . . . 3 Organization . . . . . . . . . . . . . . . . . . . . . . . 3 Design . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Project Implementation . . . . . . . . . . . . . . . . . . . . 3 Loan Processing and Project Start-up . . . . . . . . . . . 3 Procurement . . . . . . . . . . . . . . . . . . . . . . . 3 Project Revisions . . . . . . . . . . . . . . . . . . . . . 4 Project Delays . . . . . . . . . . . . . . . . . . . . . . 4 Project Costs . . . . . . . . . . . . . . . . . . . . . . 5 Project Financing . . . . . . 5 Loan Allocations and Disbursements . . . . . . . . . . . . 5 Project Results . . . . . . . . . . . . . . . . . . . . . . . 6 Physical Results . . . . . . . . . . . . . . . . . . . . . 6 Financial Results . . . . . . . . . . . . . . . . . . . . . 6 Economic Results . . . . . . . . . . . . . . . . . . . . . 7 Institutional Results . . . . . . . . . . . . . . . . . . . 7 Project Sustainability . . . . . . . . . . . . . . . . . . . . 7 Bank Performance . . . . . . . . . . ... . . . . . . . . . . . 8 Borrower/Implementing Agency Performance . . . . . . . . . . . 8 Performance of Suppliers and Contractors . . . . . . . . . . . 8 Project Documentation and Data . . . . . . . . . . . . . . . . 9 Conclusions and Lessons Learned . . . . . . . . . . . . . . . 9 PART II: PROJECT REVIEW FROM BORROWERS PERSPECTIVE . . . . . . . . . 10 Evolution and Implementation of the Project . . . . . . . . . 10 Conceptualization . . . . . . . . . . . . . . . . . . . . 10 Changes in Project Content/Financing . . . . . . . . . . . 10 Comparative Analysis . . . . . . . . . . . . . . . . . . . . 13 Physical Accomplishments Under Part A . . . . . . . . . . . 13 Physical Accomplishments Under Parts B - G. . . . . . . . . 14 Project Cost and Annual Disbursement . . . . . . . . . . . 15 Project Internal Financial Rate of Return . . . . . . . . . 15 Causes of Delay . . . . . . . . . . . . . . . . . . . . . . . 16 Internal . . . . . . . . . . . . . . . . . . . . . . . . . 16 External . . . . . . . . . . . . . . . . . . . . . . . . . 16 Contractor's Financing Problems . . . . . . . . . . . . . . 17 MWSS Internal Problems . . . . . . . . . . . . . . . . . . 17 Lessons and Improvements . . . . . . . . . . . . . . . . . . . 18 Feasibility Study . . . . . . . . . . . . . . . . . . . . . 18 Detailed Engineering . . . . . . . . . . . . . . . . . . . 18 Borrower's Performance . . . . . . . . . . . . . . . . . . . 21 Bank' Performance . . . . . . . . . . . . . . . . . . . . . . 22 This document has a restricted distribution and may be used by recipients only in the performance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (Continued) PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . . . . . 23 1. Related Bank Loans . . . . . . . . . . . . . . . . . . . . 23 2. Project Timetable and Issues Raised . . . . . . . . . . . . 24 3. Loan Disbursements . . . . . . . . . . . . . . . . . . . . 27 a) Cumulative Estimated and Actual Disbursements . . . . . 27 b) Original and Final Allocation of Proceeds . . . . . . . 28 4. Project Implementation: Monitoring Indicators . . . . . . . 29 5. Project Costs and Financing . . . . . . . . . . . . . . . . 31 6. Project Results . . . . . . . . . . . . . . . . . . . . . . 35 a) Direct Benefits . . . . . . . . . . . . . . . . . . . . 35 b) Economic Impact . . . . . . . . . . . . . . . . . . . . 36 c) Financial Impact: Key Indicators . . . . . . . . . . . . 37 7. Status of Major Covenants . . . . . . . . . . . . . . . . . 39 8. Use of Bank Resources . . . . . . . . . . . . . . . . . . . 44 a) Bank Staff/Consultant Inputs . . . . . . . . . . . . . . 44 b) Bank Missions . . . . . . . . . . . . . . . . . . . . . 45 Annex 1: Description of the Project . . . . . . . . . . . . . . . . 47 Annex 2: Calculation of Internal Financial Rate of Return (Appraisal) 49 Annex 3: Calculation of Internal Financial Rate of Return (Completion) so Annex 4: Compliance With Major Covenants (Prepared by MWSS) . . . . 58  PROJECT COMPLETION REPORT THE PHILIPPINES METROPOLITAN MANILA WATER DISTRIBUTION PROJECT (LOAN 2676-PH) PREFACE This is the Project Completion Report (PCR) for the Metropolitan Manila Water Distribution Project in the Philippines, for which Loan 2676-PH in the amount of US$69.0 million to the Republic of the Philippines was approved on April 3, 1986. This was the third project financed by the Bank exclusively for community water supply in Manila . The Bank had also financed a Sewerage and Sanitation Project for Manila (Part III, Section 1). During project implementation, at the request of the Borrower, US$31.0 million of the loan amount was canceled and the original closing date of December 31, 1991 was extended twice to December 31, 1993. The loan account was closed on May 19,1994 when the undisbursed balance of US$2.7 million was canceled. The final disbursed amount was US$35.3 million. The PCR has been prepared jointly by the Infrastructure Operations Division of the Asia Regional Office (Preface, Evaluation Summary and Parts I and III) and the Metropolitan Waterworks and Sewerage System of Manila which prepared Part II.   - ii - PROJECT COMPLETION REPORT THE PHILIPPINES METROPOLITAN MANILA WATER DISTRIBUTION PROJECT (LOAN 2676-PH) EVALUATION SUMMARY The Project and its Objectives i. The Metropolitan Manila Water Distribution Project (MMWDP) was intended to assist with improvement of the efficiency of the Metropolitan Waterworks and Sewerage System (MWSS) in utilization of existing water production and transmission capacity for the benefit of about 2.3 million people, of which about 20% were poor. The project components were conventional, with no significant innovations, and comprised a program of additions and improvements to the distribution system and technical assistance to strengthen financial management and for the preparation of the proposed future Laiban Dam project (Paras. 1.9-1.10 and Annex 1). ii. The project was a follow-up to the Second Manila Water Supply Project (MWSP II) which the Bank had financed (Ln. 1615-PH) in 1978 (Part III- 1). MWSP II had experienced long delays and cost overruns during a severe national economic crisis and it appeared that funds required for completion of water distribution components were inadequate. Therefore, the new project was intended to finance completion of some distribution started under MWSP II: about 35% of the amount of the new loan was intended for this purpose (Paras. 1.3-1.4, 1.9-1.10 and 2.1). iii. Prior to identification of the new project, the Bank was expected to assist with the financing of a large increase in water production capacity, the next stage of MWSS's ambitious long-term development program. The change in plans resulted from a joint MWSS/Bank review of investment priorities when it was agreed that top priority should go to new distribution and service connections so as to better use available capacity, increase population coverage and improve MWSS revenues (Paras. 1.3, 1.5 and 2.1). iv. Another change in MWSS priorities at that time, from production expansion to better use of existing facilities, was reflected in the first ADB financed Manila Water Supply Rehabilitation Project. This was MWSS's first major effort directed specifically toward reduction of its unacceptably high non revenue water (NRW) problem and it was a critical companion to the new Bank project (paras. 1.3, 1.5, 1.8 and 1.11). Implementation Experience v. Loan processing proceeded efficiently and the loan was approved substantially on schedule in spite of a number of issues which had to be resolved (Part III-2a and 2b). Various government actions on behalf of MWSS were taken in time to avoid an extended delay in negotiations. Project planning was advanced to the point where the first contracts could be tendered about the time the loan was scheduled for approval. The latest date for effectiveness had to be extended twice, however, while problems relating to the Subsidiary Loan Agreement and restrictions attached to the Monetary Board's approval of the loan were resolved. It appears also that reservations by MWSS's new management about proceeding with the project may have contributed to this delay (Paras. 1.14-1.16, 2.15 and 2.20). vi. The project was being revised constantly. At the very beginning, MWSS determined that, because of subsidence in the inflation rate and because government equity contributions were again available, the balance of MWSP II works would not require funding from the new loan. As the project progressed, MWSS decided to finance, from its own or other sources of funds, other works which had been identified as part of the project. Also, MWSS elected not to use consultants to assist with project management, and when the Laiban project was deferred, there was no longer any need to include the relevant consulting services as part of this project (Paras. 1.20-1.22).  - iii - vii. The preliminary plans for connections to and within subdivisions and blighted and other areas (Annex 1) were based on surveys, maps and other data which proved to be inadequate or incorrect. This caused a number of problems, particularly with respect to access and rights-of-way, and required the replacement or cancellation of some of the intended works (Paras. 2.10, 2.16, 2.21, 2.28, 2.32, 2.44 and 2.47-2.48). Otherwise, there were no significant problems with project designs. viii. In accordance with MWSS practice, most of the works were carried out through a large number of small contracts, placing an extra burden on project management which already was in a state of transition to a new centralized system (paras. 1.13 and 1.17). In addition to being overloaded, the procurement process was hampered by an extremely cumbersome bureaucratic system of checks and balances involving not only MWSS but also various government agencies. Some of these constraints were relieved during the project at the initiative of MWSS project staff (Para. 1.18). ix. There were difficulties with several contractors who abandoned the work or were terminated, requiring retendering or the taking over of the work by MWSS. While some of these contractors lacked the necessary technical qualifications, most of the problems were caused by underbidding or the lack of necessary financial resources. During the project, the government-dictated requirements for qualifying contractors were strengthened (Paras 1.19 and 2.30-2.31). x. The project implementation period was extended about three years byond the original scheduled completion date of December 31, 1990 (Part III- 2a), primarily because of the delays resulting from the many project revisions. There were also delays caused by tendering and contract award procedures and the performance failures of some contractors (Para. 1.23). xi. The final cost of the project was about P 1,585 million (US$ 69.4 million equivalent, before interest and other charges on the loan during construction (IDC). This is about 92% of the appraisal estimate of P 1,725 million. The savings are attributed to the project revisions and to price inflation which was lower than predicted during appraisal (Paras. 1.24-1.27 and Part III-5b and 5c). The reduced bank loan of US$35.3 million was required for only 47k of project expenditures, or 43t of total project financing including IDC, as compared to the appraisal forecasts of about 71% and 72% respectively. Other funds required for the project from MWSS and other sources were available as needed MWSS (Paras. 1.28-1.29). xii. From the start, the rate of withdrawals from the loan was far behind the appraisl forecasts. The date of closing the loan account, in May 1994, nearly two-and-one-half years later than the original closing date, was, however, predictable from the country profile for disbursements on Bank financed Philippine projects in this sector that existed when the project was appraised (Paras. 1.30-1.32 and Part III-3a and b). Project Results xiii. Taking into account the revisions and somewhat reduced scope of the project, it is considered to have satisfied the physical objectives. The length of pipelines constructed during the project period and financed in part at least from the loan and MWSS funds was more than three times the estimated amounts. Not counting service connections internal to the subdivisions to which MWSS extended service, about 95% of of the target for service connections was met. The disappointments were in the inability to add many yard connections in low income areas and that the estimated additional population served by distribution extensions was only about 70 % of the objective (Paras. 1.33-1.34 and PartIII-4 and 6a). xiv. MWSS financial performance during the project period was disappointing, principally in the failure to achieve operating revenue targets despite the fact that projected water production and house connections were close to the target. The volume of water sold, however, was only 57