Turkey - CESME Water Supply & Sewer

 ICRR 12262 Report Number : ICRR12262 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 09/26/2005 PROJ ID :P008985 Appraisal Actual Project Name :CESME Water Supply & Project Costs 24 16.2 Sewer US$M ) (US$M) Country :Turkey Loan /Credit (US$M) Loan/ US$M ) 13.1 8.3 Sector (s):Water ): supply; Sewerage US$M ) Cofinancing (US$M) 0 0 L/C Number :L4315 FY ) Board Approval (FY) 98 Partners involved : None Closing Date 12/31/2003 12/31/2004 Evaluator : Panel Reviewer : Group Manager : Group : Kavita Mathur Roy Gilbert Alain A. Barbu OEDSG 2. Project Objectives and Components a. Objectives The objectives of the project (as stated in the Loan Agreement) were to: (a) develop new institutional arrangements for management of water supply and sewerage services in the Cesme-Alacati area; (b) increase efficiency in the delivery of water and sewerage services through the operation of said services by a private operator; and (c) to improve water quality, sewerage service and environmental conditions in Cesme-Alacati area. b. Components (or Key Conditions in the case of Adjustment Loans ): The project consisted of three components: (a) Institutional Development (appraisal US$3.5 million, actual US$1.6 million) consisting of strengthening the Cesme-Alacati (Municipal) Union (CALBIR) by: (i) setting up the Union’s technical and financial management systems, including auditing, staff training and office equipment; (ii) improve water and sewerage services through hiring and monitoring the performance of a private operator; (iii) providing technical assistance for a high level of project supervision; and (iv) providing technical assistance on environmental issues, including protection of sea water quality. (b) Improving the operational condition of the water supply system (appraisal US$2.6 million, actual US$3.8 million) consisting of: (i) hydro-geological investigation to increase water production of the wells in the Ildir area; district metering to reduce commercial loss; and chlorination for safer water quality; (ii) relocation of wells in the Ildir area and rehabilitation of the pumping stations to improve their operational conditions; (iii) construction of a water barrier (about 500 m long) to protect the Ildir aquifer from sea water intrusion; (iv) provision of operational equipment to improve water and wastewater services; and (v) provision for urgent repairs and upgrading of the water supply system to reduce losses (Urgent Repairs and Upgrading). (c) Completion of Sewerage System (appraisal US$10.9 million, actual US$9.46 million): (i) development and improvement of the sewerage network, consisting of the upgrading and expansion of the sewerage network through the construction of the main sewer pipes from the Cesme areas to Ilica, and the construction of the sewerage networks including house-discharges in the areas of Cesme, Alacati, and Ilica; (ii) acquisition and installation of mechanical and electrical equipment, and pipes for pumping station (TM2, TM6, TM17, and TM18); and (iii) construction of a pre-treatment plant for the combined waste water flow from Cesme and Alacati to discharge into the sea through the already constructed sea outfall in Alacati. c. Comments on Project Cost, Financing, Borrower Contribution, and Dates In October 2003, US$2.7 million was cancelled. In addition, US$1.75 million was cancelled in October 2004. The project closed after a one year delay to complete Dalyan, Boylik, and Ilica sewerage network investments. 3. Relevance of Objectives & Design : The project objectives were highly consistent with Turkey's Seventh Five Year Plan (1996-2000) for the water supply and sewerage sector which included expansion of services, development of new management systems for water supply and sewerage operations, and private sector involvement in provision of services. The project incorporated lessons from Antalya Water Supply Project. The objectives were consistent with the 1997 Country Assistance Strategy (CAS) with Bank involvement in key areas of the water supply and sanitation sector such as pricing issues, environmental concerns, and promoting reforms in the legal and institutional framework governing utilities to facilitate the involvement of private operators. The objectives remain consistent with 2003 CAS which aims at improving service delivery of local infrastructure including water and the current government policy. 4. Achievement of Objectives (Efficacy) : The objective to develop new institutional arrangements for management of water supply and sewerage services in the Cesme-Alacati area was modestly achieved. A new legal entity, Cesme-Alacati (Municipal) Union (CALBIR) was established for the development, management, and operation of water supply and wastewater services for the two small municipalities (Cesme and Alcanti). Throughout project implementation, CALBIR was understaffed. Also, no staff training was provided. CALBIR, did set-up technical and financial management systems. However, revenue collected for the water and sewerage services was not routinely deposited into CALBIR's accounts. The Mayors of Cesme and Alacati used portion of the operational revenue for other municipal expenses. CALBIR delegated the water supply and wastewater operations to a private operator (ALCESU in June 2003) by signing a ten year contract with a private consortium of the French firm Compagnie Generale des Eaux (CGE) and a Turkish Firm Tekser Insaat. However, there were substantial delays in contracting with the private operator. Consequently, physical works linked to private operator were delayed. The objective to increase efficiency in the delivery of water and sanitation services through private operator was modestly achieved as the project failed to reach two of the three efficiency targets. Bill collection target was achieved. Bill collection increased from 85% in 1997 to 94% in 2004. Although unaccounted water (as % of production) decreased from 68% in 1997 to 57% in 2004, but the appraisal target of 50% was not reached. Operating expenses increased from US$0.52 per cubic meter in 1997 to US$1.07 per cubic meter in 2004 compared to the appraisal target of reducing them to US$0.40 per cubic meter. The objective to improve water quality, sewerage service and environmental conditions in the Cesme-Alacati area was substantially achieved. Water quality improved, the average conductivity (salinity) of water distributed decreased from 3,080 micro-mhos/cm in 1997 to 730 micro-mhos/cm in 2004. The number of fecal coliforms per 100 ml in distribution system (a proxy of bacteriological quality) was 0 in 2004 (appraisal estimates not available). The number of sewerage connections increased from 860 in 1997 to 7,600 in 2003, far exceeding the appraisal target of 4,000. In 2004, the number of sewerage connections further increased to 11,500. The monitoring of seawater quality offshore of Cesme-Alacati has shown that it is satisfactory. 5. Efficiency : Substantial. An Economic Rate of Return (ERR) of 18% was achieved for water supply and sewerage investments compared to the appraisal estimate of 23%. The lower ERR is due to following reasons: (a) higher operating costs; (b) lower incremental sales; and (c) level of actual water and sewerage tariffs are lower than the appraisal targets. 6. M&E Design, Implementation, & Utilization: The project design included adequate output and performance monitoring indicators such as number of water and wastewater connections, water loss, bill collection, working ratio, and indicators to monitor water quality. M&E implementation was adequate and key output/impact indicators were included in the ICR. The Institute of Marine Sciences and Technology was responsible for monitoring the bacteriological quality of seawater. 7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative): The project substantially improved the environmental conditions in the Cesme-Alacati area. The unauthorized disposal of raw sewage from septic tanks has been discontinued and the sewage is now being disposed through the trunk sewer made operational by the project from which it eventually reached the Alcanti outfall with no adverse impact on seawater quality. 8. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately Satisfactory OED rates a project as moderately satisfactory [a rating which does not exist under the ICR's 4-point rating scale] when it achieves most of its major relevant objectives but with significant shortcomings. Two project objectives (out of three) were modestly achieved. There is no discrepancy in ratings as the ICR text rates the outcome of the project as marginally satisfactory Institutional Dev .: Modest Modest Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Exemplary NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness . 9. Lessons: Asymmetry in the experience and sophistication between small municipalities and international private water supply operators should be recognized up-front and the Bank should provide appropriate technical assistance to address this asymmetry. The risk analysis and allocation of private operator contracts in the water supply and sanitation sector must be improved and, in particular, selection criteria for private sector participants carefully analyzed especially for small municipalities. In order to mitigate the effects of high risk premiums that foreign operators charge, it is important to build national capacity to operate and maintain water supply and sewerage systems. The global experience of the private operator should be reinforced with local knowledge. The performance/service targets should be clearly defined and in case they are not achieved, penalties should be imposed on the operator. Special consideration should be given to the infrastructure development of touristic town where year round population is much lower than the peak season population. 10. Assessment Recommended? Yes No 11. Comments on Quality of ICR: The quality of the ICR is Exemplary. The ICR is well-organized, internally consistent, presents sound evidence to rate project achievements, and complies with ICR guidelines. Reporting on performance indicators specified at appraisal is commendable. The lessons learned section is noteworthy.