Colombia - Second, and Third Bogota Water Supply, Sewerage and Drainage Projects

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7231 PROJECT COMPLETION REPORT COLOMBIA SECOND BOGOTA WATER SUPPLY PROJECT (LOAN 741-CO) AND THIRD BOGOTA WATER SUPPLY, SEWERAGE AND DRAINAGE PROJECT (LOAN 1697-CG) May 2, 1988 9 Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEASURES AND EQUIVALENTS 1 meter (m) m 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 square meter (m2) - 10.8 square feet (sq ft) 1 cubic meter (m) = 35.3 cubic feet (cu ft) 1 hectare (ha) = 10,000 square meters or 2.47 acres (ac) 1 liter (1) = 0.26 US gallons (gal) 1 cubic meter (mu3) = 35.3 cubic feet (cu ft) 1 cubic meter per second = 22.8 million US gallons per day (Mgd) or (m3 sec) 35.4 cubic feet per second (cusecs) FISCAL YEAR January 1 to December 31 PRINCIPAL ABBREVIATIONS, ACRONYMS AND SYNONYMS CAR = Corporacion Autonoma Regional de la Sabana de Bogota y los Valles de Ubate y Chiquinquira (Regional Bogota Plains Development Corporation) DNP = Departamento Nacional de Planeacion (National Planning Department) EAAB = Empresa de Acueducto y Alcantarillado de Bogota (Bogota Water Supply and Sewerage Company) EEEB = Empresa de Energia Electrica de Bogota (Bogota Power Company) FFDU/BCH = Fondo Financiero de Desarrollo Urbano (Financial Fund for Urban Development) of the Central Mortgage Bank (Banco Central Hipotecario)  VOl OFFICIAL VAZ ONLY TM WORLD ANFE washiton. DC 20433 U.S.A. 0. i OecwAGuwa. May 2, 1988 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Colombia Second Bogota Water Supply Project (Loan 741-CO) and Third Bogota Water Supply, Severage and Drainage Project (Loan 1697-CO) Attached, for information, is a copy of a report entitled 'Project Completion RLport on Colombia Second Bogota Water Supply Project (Loan 741-CO) and Third Bogota Water Supply, Sewerage and Drainage Project (Loan 1697-CO)" prepared by the Latin America and the Caribbean Regional Office. Further evaluation of these projects by the Operations Evaluation Department has not been made. Attachment This document ha restricted distribution and may be used by recipients only in the performance of their official dutieL Its contents may not otherwise be disclosed without World Dank authorization.  FOR OFCik J USZ ONY COLOMBIA LOAN 741-CO, SECOND BOGOTA WATER SUPPLY PROJECT LOAN 1697-CO, THIRD BOGOTA WATER SUPPLY, SEWERAGE AND DRAINAGE PROTECT PPOJECT COMPLETION REPORT TABLE OF CONTENTS Page No. Preface . . . . . . . . . . . . ..o oo oo oo i Basic Data Sheets . . . . . .. .. . ... . . . . . ii Highlights8 ..... . .... . .. . . *** *** vi Igh INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . 1 Main Conclusions . . . . . . . . a . . . . . . . . .0 . . 2 Sector Service Levels arLd Objectives . . . . . . . . . . . . 2 Institutional Arrangements ............ .. 3 Project Area . . . o o ..... . . . .. . . . .. . . . 4 Borrower and Executing Agency . . . . . .. . . . . . . . . . 4 II. PROJECT IDENTIFICATION, APPRAISAL AND NEGOTIATIONS. . . . . . 4 The Process ... . .. . ... ... ... ... ... ... ... ... . .. . 4 Project Objectives . . . .. . . . . . . . a. .. . . . .. .. . 5 Project Description . . . . . . . . . . . . . . . . . . . . . 6 Conditions and Covenants dC enants........................... 6 III. IMPLEMiNTATION . . . . . . . . . . . . . . . . . 7 Effectiveness and Start-up................. 7 Revisions . . . . . . . . . . . . . ..............*...*.*.. 7 Implementation Schedule .................. 8 Procurement a a ...... . . .. . . ... . . ... . . 9 Project Costs . . . . . . . . . . ... . .. . . ..... ...... 9 Disbursements . . . . . . . . . . . . . . . . . . . . . . . 10 Reporting ................................... 10 Performance of Consultants, Contractors, and Suppliers . . 1i IV. OPERATING PERFORMANCE . .. . . .. . . . .*. . 11 This PCR was prepared by Mr. Roy Ramani (EGR) with the assistance of Mr. Julio Linares (FNA). Mmes. N. Quinones, E.Torda and R. Schneider assisted with the production of the report. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not ctherwise be disclosed without World Bank authorization.  Table of Coatents (Cont'd.) Page No. V. FINANCIAL PERFOR CE . . . . . . . ....... 13 Financial Results . . . . . . . . . . . 13 Investment Financing. . . . . . . . . . . . . . . . . . . . 13 VI. INSTITUTIONAL PERFORMAICE .. . .. . . . . .. . . . . 14 VII. PROJECT JUSTIFICATION . . . . . . . . . . . . . . . . . .. 14 Project Achievements . . . . . . . . . . o . .** . . * *. 14 Internal Finacial Rate of Return (IFRR) . . . . . . . . . . 15 VIII. BANK PERFORMANCE, CONCLUSIONS, AID LESSONS LEARNED. . . . . 16 TIST OF ANNEXES 1. Compliance with Key Loan Covenants, Loans 741-CO and 1697-CO . . . *.* . * * * . a . . . . . * . *. . a 18 2. Comparative Project Scope, Loan 741-CO . *. . . .* . . . . 19 3. Ccmparative Project Scope, Loan 1697-CO . . . . . . . . . . 21 4. Comparative Implementation Schedule, Loan 741-CO . .. 22 5. Comparative Implementation Schedule, Loan 1697-CO . . . 23 6. Comparative Project Costs, Loan 741-CO . . .. 24 7. Comparative Project Costs, Loan 1697-CO . . . . X . . . . . 25 8. Allocation of Loan Proceeds and Cumulative Disbursement Schedule, Loan 741-CO . .26 9. Allocation of Loan Proceeds and Cumulative Disbursement Schedule, Loan 1697-CO . . 27 10. Monitoring Indicators . . . . . . . . . . . . . . . . . . . . 28 11. Cash Flow Statements .. .. .. .. ... .. . ...... 29 12. SuAmmary of Economic Benefit Calculations 35 13. Borrower's Opinion . . . . . . . . . . . . . . . . . . . . . 36 Chart EAAB's Organizational Structure MAP IBRD NO.20402  COLOMBIA LOAN 741-CO, SECOND rOGOTA WATER SUPPLY PROJECT LOAN 1697-CO, THIRD BOGOTA WATER SUPPLY, SEWERAGE AND DRAINAGE PROJEC! PROJECT COMPLETION REPORT PREFACE This is a project completion report of two closely related, complementary projects in the Colombian water sector, namely, the Second Bogota Water Supply Project, for which Loan 741-CO was approved in May 1971 in the sum of US$88.0 million, and the Third Bogota Water Supply, Sewerage and Drainage Project, for which Loan 1697-CO was approved in May 1979 in the sum of US$30.0 million. While Loan 741-CO was fully disbursed, US$2.13 million was cancelled under Loan 1697-CO. The project completion report of March 31, 1987, was prepared by the Latin America and Caribbean Projects Department on the basis of documents contained in regional files and information provided by staff members involved with the projects during their execution. The Borrower, also the executing agency under both loans (Empresa de Acueducto y Aleantarillado de Bogota, EAAB), was helpful in providing project completion data which are available in the files. The Borrower's opinion is attached as Annex 13. In accordance with the revised procedures for project perform-ce audit reporting, this Project Completion Report was read by the Operations Evaluation Department (OED), but the project was not audited by OED staff. OED sent copies of the draft report to the Borrower for comments, however, none were received.  - It - COLOMBIA LOAN 741-CO. SECOND OGOTA WATER SUPPLY PRWOJCT PROJECT CONPLETION REPORT Basic Data Shoet A. Ugy PROJECT DATA Appraisal Item Estimate Actual Total rroject Cost (U$$ dillion)l/ 103.7 181.7 Overrun (Z) - 75 Loan Amount (USS million) Disbursed 88.0 88.0 Cancelled - - Repaid as of 12/31/86 19.1 17.7 Date Physical Components Completed 12/76 6/83 2/ Proportion Completed as of Above Date (Z) 100.0 98 Proportion of Time Overrun (2) - 145 Internal Financial Rates of Return (%) 14 8 Financial Performance Good Fair Institutional Performance Good Good 1/ Excluding intereat during construction. 2/ Includes works carried out beyond the Loan Closing Date for a substantial completion of the project. B. OTHER PROJECT DATA Item Original Plan Actual First Mention in Files 2/69 Government Application - 4/69 Negotiations 3/71 3/29/71 - 4/2/71 Board Approval 5/71 5/25/71 Loan Agreement Date - 5/28/71 Effectiveness Date - 8/16/71 Closing Date 12/31/77 12/31/80 Borrower and Executing Agency Empresa de Acueducto y Alcantarillado de Bogota Loan Data Interest Rate 7.252 Term 30 yrs. Grace Period 7 yrs. Follow-on Project Kaue Third Bogota Water Supply, Sewerage and Drainage Project (Loan 1697-CO) Loan Amount US$30.0 million C. CUMULATIVE LOAN DISBURSEMENT DATA Bank Fiscal Year 1972 73 74 75 76 77 78 79 80 81 Appraisal Estimate 7.4 16.6 30.1 51.3 74.1 87.2 88.0 (US$S) Actual 4.3 7.3 13.7 30.6 40.9 59.1 65.0 82.4 86.3 88.0 (US$-)  - 111 - WM: 741-M. SW W O - aA lad D1 9h= (C=t'd.) mmh b. of lb. of fd pr iuIma lb/ *b* I Wu"mw * IdutUl.*lzn 10/69 2 2 4 12/13/69 k _qf m 1/70 0.5 1 0.5 2/9/70 ftkMai 3/7 1 2 2 4/14/70 ftura1au1 10/70 2 2 4 lt/10/70 4a-fd 12/70 2 3 6 12/18170 splvuiw 3/71 1 1 1 6/8171 9SaVlslm 10/71 1 2 2 12/1/71 8.yeisli 3n72 1 2 2 '/30n aISvjm 4/72 1 1 2 6/1/72 adevlaim 5/72 1 1 1 6/1172 9viaxim 2/73 1 2 2 3/2/73 ftevlaim 3na3 1 2 2 4/2173 srydlsia 5/73 1 3 3 7/12n73 ay _v1mi 7/73 2 3 6 8/10/79 Sierw1sia 9173 0.5 1 0.5 10/3/73 9q,uv1a1a 10173 1 1 1 11/13173 9dxKvbim 12173 1 1 1 12/24/73 9'ervia1o 3174 1 2 2 4/2174 a 9ervlim 7n74 0.5 1 0.5 7/22174 9V1aim 2175 1 2 2 2/25/75 ftmvefilm 3175 0.5 2 1 3/20)75 aSqmvlaia 5175 0.5 1 0.5 6/12/75 ftuvied 9175 0.5 2 1 10/3/75 zv1s1im 10175 1 1 1 1117175 &Fv1a1m 5176 1 1 1 06/16176 8pegv11m 9/76 1 1 1 10/5176 9dvf.naom 2/77 0.5 2 1 4/25177 Syervlsi 5n7 0.5 2 1 5113/77 Verv"n 6n7 1 1 1 6/27/77 94earvisio 7n7 1 1 1 7/25177 S4&I i l'/77 0.5 1 0.5 11/10,77 qzervisi 2/78 1 2 2 4/11178 a Svlai 5/78 0.5 1 0.5 6/28n78 9sdrvlsim 7/78 1 3 3 8/2/78 Sqperda1a1 1/79 0.5 2 1 3/21/79 Svendv1sk 5179 0.5 2 1 6/:i/79 9vuv1s1ai 11/79 0.5 3 1.5 3/17/80 9yvIidM 2/80 0.5 1 0.5 3/27/80 Svlslm 5/8D 1 2 2 717/80 SqurlsIM 10/80 1 2 2 3/2/81 9yatylslai 6/82 1 2 2 7/19/82 1p1ai (FR) 9/86 0.5 2 1 - L _ f D Ozn94) #,Ctivty 6970 71 172 1 374A 75 I fl78 79aD 82 Tht ftqmt1aa 4.0 6.5 10.5 4iu.1 6.0 6.0 Sywvislm 3.0 5.0 15.5 2.5 5.5 2.0 4.5 5.5 3.5 as 2.0 53.5 &WUM1.0 1.0 (az) Thaid 4.0 12.5 3.0 5.0 15.S 2.5 .5! 2.0 4.3 5.5 3.5 4.S 2.0 1.0 71.0 F. alE iMt I_ i OzusV cloddo goo (aO) Ap4 i TM be (1970): 1 1$ - Cl$ 22.0 !_tsvmdzg Ta am (197140): 1 U s $ 2 C 4 27 Find Makma l A hA (1Ul): 1 w -Col0 55  - iv - COLOMBIA LOAN 1597-CO. TIRID BOGOTA WATER SUPPLY, SEWERAGE AND DRAINAGE PROJECT PROJECT COMPLETION REPORT Basic Data Sheet A. KEY PROJECT DATA Appraisal Ites Estimate Actual Total Project Coat (US$ million)1/ 62.65 58.90 * Underrun(2) - 6 Loan Amount (USS million) Disbursed 30.00 27.87 Cancelled - 2.13 Repaid as of 12/31/86 8^80 7.50 Date Physical Components Completed 12/82 6/85 Proportion Completed as of Above Date (2) 100.0 100 1/ Proportion of Time Overrun (Z) - 50 Internal Financial Rates of Return (2) 37 2/ 36 4/ Financial Performance Good Fair Institutional Performance Good Good I/ Excluding interest during construction. 2/ Coubined rate of return for water, sewerage and drainage. 3/ Refers to the completion of the revised project scope (see part. 3.03). 4/ Rate of return for water and sewerage only. Investments in macro- drainage deferred (see para. 7.03). B. OTHER PROJECT DATV. Item Original Plan Actual First Mention in Files -- 2177 Government Application -- 4/77 Negotiations 4/79 4/2/79 - 4/6/79 Board Approval 5/15/79 Loan Agreement Date 11/30/79 Effectivoness Date 4/22/80 Closiing Date 6/30/83 6/30/85 Borrower and Executing Agency Empresa de Acueducto y Alcantarillado de Bogota Loan Data Interest Rate 7.90Z Term 30 yrs. Grace Period 7 yrs. Follow-on Project Name Fourth Bogota Water Supply, Sewerage & Drainage Project (Loan 251;-CO) Loan Amount US$129.0 million) C. CUNULATIVZ LOAN DISBURSEMENT DATA Bank Fiscal Year 1980 81 82 83 84 85 86 Appraisal Estimate (USSm) 9.5 19.5 27.0 30.0 Actual (US$W) 0.5 1.5 9.0 20.3 24.0 25.4 27.9  -v - IWAN 1697-ED, MMN] YrTA OM 3JPPLY, AW IRAD MADAM PWcU Unic Data ShWe; (Coat'd.) Mbnth/ Nb. of ND. of Staff IRport _4sio Year/ W Perm* Week Date -I- -xdentificatinn 2/78 2 3 6 3/21/78 Prea4ppraisa1 7/78 1.5 3 4.5 8/2/78 At%praisal 9/78 2 3 6 9/20/78 Siperveison 5/78 0.5 2 1 6/22/79 Sipervision 11/79 0.5 2 1 12/12/79 Sipervision 5/80 1 2 2 7/7/80 Sipervision 10/80 1 2 2 11/5/80 Siervision 5/81 1 2 2 6/19/81 R]Pervision 5/82 1 1 1 6/11/82 Sienrvision 6/82 1 2 2 7/22/82 Spervision 10/82 0.5 2 1 10/25/82 9pervision 2/83 1 2 2 3/9/83 S4ervision 7/83 0.5 1 0.5 8/10/83 Syervddn 10/83 1 2 2 11/1/&8 Siervision 4/84 2 2 4 5/11/84 wpeVision 5/85 1.5 2 3 6/27/81 Sipervision 2/86 1 1 1 2/21/86 Caoletion 9/86 0.5 2 1 - E. STAFF INPUT SUMMARY (STAFF-WEEKS) Activity 78 79 80 81 82 83 84 85 86 Total Preparation 10.5 10.5 Appraisal 6.0 6.0 Supervision 1.0 1.0 4.0 2.0 4.0 4.5 4.0 3.0 1.0 24.5 Completion (PCR) 1.0 1.0 Total 17.5 1.0 4.0 2.0 4.0 4.5 4.0 3.0 2.0 42.0 F. CURRENCY EXCHANGE DATA Name of Currency: Colombian Peso (Col$) Appraisal Year Average (1978): 1 US$ - Col$ 39.0 Intervening Years Range (1979-84): 1 US$ - Col$ 42-100 Final Disbursement Year Average: (1985):: 1 US$ - Col $142  - vi - COLOMBIA LOAN 741-CO, SECOND BOGOTA WATER SUPPLY PROJECT LOAN 1697-CO, THIRD BOGOTA WATER SUPPLY, SEWERAGE AND DRAINAGE PROJECT PROJECT COMPLETION REPORT HIGHLIGHTS The two projects represented the Bank's continuing involvement with the Bogota Water Supply and Sewerage Company (EAAB)in the expansion of water resources and in the improvement of water supply, sewerage and drainage in the Bogota metropolitan area. The urban poor were the major targeted beneficiaries of the planned improvements. The projects also supported technical assistance programs to address the problems of flood control and pollution abatement in the Bogota River and to seek remedial uaasures. The objectives of the projects were consistent with the Government's water development strategy for Bogota. The combined achievements of both projects were impressive in that they expanded the water and sewerage services to an additional 2.3 million population which, in terms of percent coverage, exceeded appraisal targets (para. 7.01). The physical components of the projects (paras. 2.04 and 2.05) were executed satisfactorily, albeit with delays, which were highly pronounced in the case of the Chingaza water scheme of the Second Bogota Project. The implementation of the Chingaza tunnel contract was marred by problems with a first contractor and construction difficulties, the latter arising from complex technical factors relating to a difficult geology of the area (paras. 3.04 and 3.12). Because of a lower-than-projected water demand, the impact of dslays of the Chingaza tunnel construction was rather minimal. Project cost overruns of the Chingaza components, changing urban development patterns, and lower per capita water consumption levels -- all these factors plus the financial constraints of EAAB, led to modifications in the scope of both the Second and Third Bogota Projects (para. 3.03). The Second Bogota Project was implemented during 1971-83 (against an appraisal target of 1971-77) and the Third Bogota Project, during 1979-85 (against the target of 1979-82). A major highlight of the Second Bogota Project was its dual-sector purpose, providing increased water supply to EAAB on one hand and substantial hydroelectric power benefits to the Bogota Power Company (Empresa de Energia Electrica de Bogota, EEEB) on the other hand. The Chingaza diversion scheme represented a major first step of a coordinated water resources development plan in the Bogota region for water supply and power generation purposes. In light of the power benefits, EEEB also contributed to the financing of the project and agreed to share EAAB's debt-servicing of the Bank loan. Lessons learned from implementation of the projects were applied in the preparation of the Fourth Bogota Project where a greater care was given to estimating water :>mand and consumption levels, to undertaking more detailed surveys for complex works such as tunnels prior to bidding, and co adopting a more realistic implementation schedule than in the pro- jects reviewed he-e.  - vii - EAAB' finances declined during a major part of project implementation period --particularly during 1971-75 and 1980-82-- on account of its lower-than-estimated water sales (which also represented an underutilization of its production capacity) and prcoloet cost overruns, particularly of the Chingaza scbeme. This situation was further exacerbated by insufficient and untimely tariff increases which were, to a large extent, beyond the control of SAAB (para. 5.02). Even though BAAB had well qualified staff, its financial management systems became strained during the final years of the project due to a rapidly increasing servioe coverage brought about by the two projects. To address this problem, an institutional strengthening program has been included in the Fourth Bogota Water Supply Project (Loan 2512-CO). Overall, EAAB was --and still remains-- a well-run water and sewerage agency. Its ratio of staff per 1000 connections, which was notably reduced from 7.9 to 4.9 during the project-period, ranked one of the lowest for similar water and sewerage utilities in the Latin JAmerica region (para. 4.05). Unaccounted-for water remained satisfactory during the period 1971-77. After this period, however, there was a significant increase in the peroentage, from about 27% in 1977 to about 40% in 1983 when the Chingaza system became operational (the problem of an increasing unaccounted-for water, attendant with high operating pressures in old distribution systems, has also been evidenced for similar systems in other countries). Water losses were also attributable to factors such as the under-registration of consumption meters, illegal connections and unmetered public standpipes. Given the growth of marginal areas served, where operating conditions are difficult and the anticipated increase in water pressures, appraisal targets to reduce unaccounted-for water to less than 30% were optimistic, without a forceful program to reduce losses. Because of EAAB's lingering financial constraints, no systematic unaccounted-for water control program could be put into practice under the two projeots. This problem is currently addressed under the Bank-financed Fourth Bogota Project (para. 4.04). A detailed engineering design was completed for the recommended first phase of the Bogota River floovl control project. Investigations were also undertaken by EAAB to seek measures for treating the sewage generated within the Bogota area and abating pollution in the river. The indicated total cost of pollution abatement is however very high and hence interim solutions are being sought by EAAB to minimize pollution levels in the river. In the area of flood and pollution control further studies are needed to address the associated issues of cost recovery, urban development patterns, and the roles of the Bogota regional and local planning agencies for project implementation. Funds have been provided under the Fourth Bogota Projeot to undertake above studies (para. 3.05).  COLOMBIA LOAN 741-CO, SECOND BOGOTA WATER SUPPLY PROJECT LOAN 1697-CO, THIRD BOGOTA WATER SUPPLY, SEWERAGE AND DRAINAGE PROJECT PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 This project completion report (PCR) concerns the Second Bogota Water Supply Project (Loan 741-CO) and the Third Bogota Water Supply, Sewerage and Drainage Project (Loan 1697-CO) for which loan amounts of US$80.0 million and US$30.0 million were approved in May 1971 and May 1979 respectively. The main objective of the projects was to improve the water supply and sewerage service levels in the Bogota metropolitan area, to develop a coordinated flood control and pollution abatement program for the Bogota River BassA near and downstream of Bogota and to bring institutional and financial improvements of the Bogota Water Supply and Sewerage Company (Empresa de Acueducto y Alcantarillado de Bogota, EAAB). The second project was implemented during 1971-83 (against appraisal-projected 1971-77 per'od) and the third project during 1979-85 (against appraisal-projected 1979-82 period). 1.02 The Bank's relationship with EAAB began in 1968 with the financing of the Tibito II water scheme (First Bogota Water Supply Project; Loan 536-CO; Amount - US$14.0 million; implementation period - 1968 through 1973), aimed to increase the capacity of Bogota's water supply from 5.5 m3/sec to 13.5 m3/sec, sufficient to eliminate the then existing water deficit and keep ahead of demand through 1976. The second loan, namely Loan 741-CO, which is the subject of this PCR, represented a second stage of the long-range Bogota water resources development plan which was to coordinate the program for further expansion of the water system (to meet demands through 1985) of diverting water from outside basins (particularly the Chingaza River) into the Bogota River Basin, with the possibilities of substantially increasing the hydroelectric power potential of the Bogota River. Loan 1697-CO, also the subject of this PCR, was the Bank's third operation with EAAB, directed at improving the coverage of water distribution networks, sewage collection, and drainage, particularly in the low-income ("barrios marginales") areas of the city. The above projects were followed by the Fourth Bogota Water Supply and Sewerage Project in 1984 (Loan 2512-CO; Amount-US$129.0 million; ImrLementation period - 1985 through 1992) under which further expansions of the transmission and distribution capacity of the system are currently carried out, together with technical assistance to further strengthen EAAB in the areas of finance and operations.  -2- Main Conclusions 1.03 The basic objectives of water supply expansion and increased water and sewerage service levels for the Bogota metropolitan area were essentially met. Together, the two projects expanded the coverage of water service from 77% to 96% of the population, and sewerage from 72% to 89%, which exceeded appraisal targets. Loan 741-CO provided dual sector benefits in regard to expanding the water 9 ply by about 12 m3/sec through the Chingaza (first phase) se,-eme as well as providing better-than-expected hydroelectric power benefits to the Bogota Power Company (Empresa de Energia Electrica de Bogota, EEEB). However, the technical complexity of the above project, coupled with performance problems with a first contractor as well as high inflation levels, resulted in a high cost overrun and project completion delays. The coexistence of a less-than-projected per capita water demand and lower population levels led to an underutilization of the system capacity which caused a severe financial burden to EAAB. Project implementation delays also persisted under Loan 1697-CO, which however, focussed successfully on secondary water, sewerage and drainage networks in the low-income areas. Because of changing urban development patterns as well as EAAB's lingering financial constraints, most of the proposed investments for trunk sewerage and drainage were deleted from above project scope. 1.04 Execution of the Bogota River Water Pollution Control Study and the Bogota River Flood Control and Rectification Study was rather slow. This resulted from an initial lack of active coordination and agreement between EAAB and the Regional Bogota Plains Development Corporation (Corporacion Autonoma Regional de la Sabana de Bogota, CAR). The implementation details of the above two studies remain to be further defined under the Fourth Bogota Project. 1.05 Despite its financial constraints, and frequent changes in the top level management during the overall project implementation period 1971-85, EAAB managed to retain a strong institutional character. It managed to attract well qualified technical staff in its overall operations. Improvements in budget planning, accounting and financial control were introduced during the project period. EAAB's major weakness, however, was in the area of operation and maintenance --with special regard to the control of unaccounted-for water. This problem is currenuly addressed under the Fourth Bogota Project. Sector Service Levels and Obiectives 1.06 In the 1970's, when both loans were appraised, about 73% of Colombia's urban population (about 19 million in 1978) had access to water through house connections and about 60% was served by sewerage systems. Service levels in the rural areas were lower, with 40% of the rural population having access to water through service connections, and 12% to piped sewerage. The extent and quality of service were much better in the larger urban areas than in the smaller cities. In the large cities,  service was however deficient in the rapidly growing poor neighborhoods as evidenced particularly for the Bogota metropolitan area. The Government's initial efforts were focused on improving water coverage in the major problem urban areas. To foster more balanced urban development and to reduce migratory pressure on the large cities, the Government's emerging policy was also to make living conditions more attractive in the small-and medium-sized towns. Upgrading the infrastructure in these towns, including water supply and sewerage, thus had a high priority in the Government's development plans. The long-term goal was to extend water supply and sewerage service coverage to about 80% and 70%, respectively, by 1980. The Bank has supported the Government's objectives in the water and sewerage sector through its participation in a total of 12 projects to date (total Bank loan - about US$405 million), distributed as follows: Bogota Metropolitan area - 4 projects; and other urban areas - 8 projects. Institutional Arrangements 1.07 At the time of project appraisal the sector was, and until institutional reforms established by Presidential Decree in January 1987 are implemented by the end of 1988, still is, largely organized in a centralized manner.'/ The Ministry of Health, in coordination with the DNP, is responsible for formulating national sectoral policies. Two institutions dependent on the Ministry of Health --the National Institute of Urban Development (INSFOPAL) and the National Institute of Health--are responsible for implementing sector policies in urban and rural areas, respectively. Both of these institutions have planning, supervisory, and technical assistance functions and act as financial intermediares for domestic and external resources for sector investments. 1.08 On the departmental and municipal level, different types of institutions are responsible for providing water and sewerage services. Some 35 autonomous municipal water companies (including EAAB for the Bogota District are responsible for providing water and sewerage services, as well as solid waste and other municipal services in many instances in Colombia'a largest cities. Some 25 departmental companies, of which INSFOPAL is the principal shareholder and/or controlling entity provide water and sewerage services in some 450 smaller municipalities. In some other 300 municipalities, the municipal administrations manage the services directly, without any formal ties to departmental or central government authorities. I/ Under the Presidential Decree of January 15, 1987, aimed to reorgan- ize the water and sewerage sector operations, the Ministry of Public works will assume responsibility for sector oversight. The operational responsibilities of INSFOPAL will be transferred to the regional and local water and sewerage companies. INSFOPAL itself will cease to exist. The Financial Fund for Urban Development (FFDU) of the Central Mortgage Bank (BCH), will be the primary technical and financial intermediary for sector investments.  In the rural areas, individual communities construct the systems and operate the services in accordance with principles established by the Ministry of Health. Project Area 1.09 Both projects were located in the Special District of Bogota, which is the capital of Colombia. Bogota's population was estimated to be 3.8 million in 1978, accounting for about 15% of the then total population of Colombia and 24% of the urban population. At the appraisal of Loan 741-CO in 1971, about 77% of Bogota population received piped water and about 72% had access to EAAB sewerage or drainage system. Because of its metropolitan characteristics, Bogota has had one of the country's highest urban population growth rates (close to 7.0% in the early 1970's). This, coupled with the ample space for expansion, meant that the demand for public services would continue to grow rapidly over the years. EAAB was also faced with the additional problem of providing water, sewerage and drainage services to several low-income towns beyond the limits of the Special Diatrict of Bogota. Borrower and Executing Agency 1.10 EAAB was the Borrower and Executing Agency for both loais, 741-CO and 1697-CO. It is an autonomous public enterprise owned by the Municipality of the Special District of Bogota. It was organized in 1955 under a Municipal Decree and has the responsibility for planning, constructing, ail operating alL water supply, sewerage, and drainage facilities in the Special District. At appraisal, EAAB was governed by a seven-member Board of Directors with the Mayor as the Chairman of the Board. The General Manager,, who is the Chief Executive Officer, is appointed by the Mayor. While EAAB is autonomous, its investment program must be integrated with other development programs of the Municipality and its tariffs approved by the National Tariff Board. Moreover, in matters relating to the pollution control of the Bogota Aiver, EPAB is subject to the oversight of CAR, agency which under DNP's supervision, is responsible for water resources management and pollution control of the Bogota Plain. At appraisal, EAAB consisted of 5 major departments, namely planning, engineering, administration, operations, and finance (Chart 1). II. PROJECT IDENTIFICATION, APPRAISAL, AND NEGOTIATIONS The Process 2.01 The specific origin of the Second Bogota Project loan to EHAB, (Loan 741-CO), could be traced to the recommendations of the Chingaza feasibility studies (1968) that EMB carried out with the assistance of consultants under Loan 536-CO (para. 1.02). Appraisal of subject loan was carried out in December 1970. Negotiations were held in Washington, D.C. during March 1971 with the Board Approval and Loan Signature taking place  -5- in the following two months. The main issues during project preparation and negotiations related to the financial contribution to the Chingaza scheme by the Bogota Power Company, EEEB, in light of the anticipated additional hydro-power potential of the diverted flows into the Bogota River.2/ Although an initial agreement was reached, subsequent project implementation delays and cost overruns warranted RBAk to restudy in 1981 the power benefits and cost-sharing aspects of ZEEB. After years of protracted negotiations, EAAB and REEB reached a final agreement in early 1987 regarding the above issue. 2.02 While Loan 741-CO was primarily aimed at meeting Bogota's water supply needs through 1985, it was EAAB's intent that subsequent investments would be progressively planned to reinforce and extend the citywide distribution network as well as improve waatewater collection and drainage. In line with this, the Third Bogota Water project (Loan 1697-CO) was prepared in 1978, based on a master plan study by consultants hired under Loan 741-CO. Because of a high cost overrun of the then ongoing Chingaza scheme under Loan 741-CO and the consequent financial burdens on kEAB, the Bank was justifiably concerned with the issues of EAAB's financial constraints and the requisite mitigative measures during the appraisal of the third loan. In this connection, Bank's discussions with EAAB were centered on the needs for the adoption of tariff increases and improvements in the colleetion of valorization levies.3/ Loan 1697-CO was negotiated in April 1979, with the Board Approval and Loan Signature taking place in the following seven months. Project Objectives 2.03 The sectoral objective of both projects was to support the government's policy of improving health and living conditions of Bogota's residents through an expansion of water supply, sewerage and drainage facilities. It was also intended under both loans to study ways of abating pollution and controlling flood in the Bogota River. While EAAB's overall management and financial systems were adequate, strengthening was to be provided in specific areas of budgetary planning and assets revaluation. Quantified project targets included: under Loan 741-CO, an expansion of water supply by about 7.5 m3/sec and possibly up to 12.0 m3/sec;4/ and 2/ It was anticipated that the diversion of Chingaza water into the Bogota River would more than double the river's average flow, resulting into a considerable increase in the hydro-power generation potential. 3 The Bank's proposal with regard to EAkB being given the authority to directly collect valorization on its own improvement works rather than through the existing arrangement with the Bogota Special District Authority (specifically, the Instituto de Desarrollo Urbano) could not materialize due to legal complexities. 4/ This depended on the results of the then ongoing feasibility study on the inclusion of the diversion of the Guatiquia River to the Chingaza system. The appraisal project cost did not include the cost of this component which was anticipated to provide an additional 4 to 4.5 m3/sec at minimal cost (see footnote 6/ for further details).  -6- under Loan 1697-CO, the provision of potable water to about 1.1 million additional individuals (131,000 new connections) and severage to about 1.0 million additional individuals (123,000 new connections) with emphasis on coverage for low-income areas. Project Description 2.04 The Second Bog-ta Project, financed under Loan 741-CO, was to consist of: (i) the first stage of the Chingaza scheme (a dam; a 33 km tunnel-cum-pipeline transmission system;5/ a new treatment plant at El Sapo location); (ii) further expansion and rehabilitation of the Bogota water distribution system; (iii) provision of operational and other equipment; and (iv) engineering services related to the design of the project as well as to future schemes for sewerage, drainage, flood control, and pollution control in the Bogota metropolitan area. 2.05 The Third Bogota project, financed under Loan 1697-C0, included the following: (i) about 27 km water transmission mains and about 80 km of secondary distribution mains; (ii) about 17 km of interceptors (to be built along the main streams of the four river systems which arain the metropolitan area) and sewerage networks of about 150 km; (iii) canalization of about 10 km of the main streams of the river systems noted above; construction of 3 retention basins for flood control and storm- water drainage networks; (iv) equipment purchase (including water meters, construction and maintenance equipment, and vehicles); and (v) engineering services related to the project and for the continuation of studies (including design for the recommended first-phase) for the rectification of the Bogota River and its pollution control aspects. Conditions and Covenants 2.06 The Loan Agreement for Loan 741-CO focussed on a key financial covenant for EAAB in meeting specified financial rates of return on revalued fixed assets and for the national government agencies to clear their past overdue water bills and start paying new water bills in a timely manner. The conditions and covenants agreed under Loan 1697-CO related to specified financial rates of return as well as establishment of coordination agreements with the Institute of Urban Development (Instituto de Desarrollo Urbano), a Bogota city agency, for improved collection of 5/ For technico-economical reasons, the conveyance system was designed to carry ultimate capacity (12m3/sec).  - 7 - valorization charges (see footnote 3) and, with CAR and EEEB, for carrying out the Bogota River Flood Control and Rectification Study. To a large measure, the stipulated covenants under both loans reflected the Bank's desire to improve EAAB's finances and to seek an inter-agency coordination in arriving at a concerted solution to the flood control and pollution problems in the Bogota River. Annex 1 presents the status of compliance with covenants under both loans. III. IMPLEMENTATION Effectiveness and Start-up 3.01 Loan 741-CO was presented to the Board on May 27, 1971, after a satisfactory execution of the key project cost-sharing agreement between EkAB and EEEB. It became effective August 16, 1971 (there were no special conditions of effectiveness). The project had a relatively smooth start with the continued appointment of key engineering consultants, who were earlier involved in the Chingaza feasibility studies, and with the bidding of the tunnel contract which was commenced in February 1971. Additional detailed engineering for the Chingaza-related works and for the water distribution system were well underway. 3.02 As with Loan 741-CO, there were no special conditions of effectiveness for Loan 1697-CO which was approved by the Board on May 15, 1979. The loan became effective on November 30, 1979. Even though most of the detailed designs had been completed and the bidding could have been commenced by loan effectiveness, EAAB began to suffer from start-up delays due to the appointment at EAAB of a new management team unfamiliar with the project. This situation was further exacerbated by EkAB's deteriorating financial condition and its failure to secure investment funds (US$20 million) from a commercial bank during the early months of project start-up. Revisions 3.03 Major revisions in project scope, as indicated in Annexes 2 and 3, included: (a) under Loan 741-CO: (i) addition of new diversion works (Guatiquia tunnel)6/ aimed to increase water yield by 4.5 m3/sec at a 6/ Even though not included in the original project cost estimate, the construction of the Guatiquia diversion works was recommended at appraisal, subject to the outcome of additional studies on technical and economic justification. Large capacity increases resulting from the low cost addition (about US$2.0 million) of the Guatiquia tunnel to the Chingaza scheme, and its associated incremental power benefits were the major justification factors that led to the undertaking of the Guatiquia works.  minimal cost; and (ii) deletion of a 25 1m major water transmission line (TJsaquen-Parque Nacional-Casablanca) and about 50 km of primary distri- bution lines, to compensate for cost overruns of the project; and (b) under Loan 1697-CO: (i) significant increases in the length of secondary water network, sewage collectors and drainage to accelerate coverage of these services in low-income areats; and (ii) reduction in the length of primary distribution main, most trunk sewers and drainage canals which could be deferred until pollution and flood control measures for the Bogota River could be more fully studied and agreed; and (iii) acquisition and installation of telemetry and communications equipment, needed to include the Chingaza system, not originally planned. The revised program for the above loan reflected a change in EAAB's priorities that had evolved since project appraisal, in response to changes in urban growth patterns as well as the financial constraints of EAAB. Implementation Schedule 3.04 Under Loan 741-CO, EAAB faced major problems in the construction of the Chingaza tunnel. The contractor, originally responsible for above tunnel construction (1972), was unable to achieve a satisfactory work progress. The tunnel works were thus retendered and awarded to a second contractor (1974). This contractor however encountered high concentrations of methane gas during the excavation of the tunnel which led to explosions on two occasions (1978 and 1981). The gas created unsafe construction conditions which resulted in long-term suspensions of the work while a solution to the problem was being worked out. The construction of the tunnel -- and the overall project -- was not completed until June, 1983, some six years behind appraisal estimates, as shown in Annex 4. There were also operational problems in the following months due to rock failure in the tunnel (para. 4.03). The tunnel finally became operational in June 1985. It appears in retrospect that the appraisal schedule for the Chingaza scheme construction did not fully take into account the complexity of tunnel construction in a difficult geological formation (mostly shale) and other potentially more hazardous problems arising from methane gas concentration during tunnel excavation. 3.05 Project implementation delays for Loan 1697-CO stemmed from BAAB's preoccupation with the Chingaza tunnel construction problems (above para.) and its shifting priorities with regard to accelerating service levels in low income areas ("barrios marginalesn). Delays were also experienced with the Bogota River Flood Control Study due to a lack of coordination between EAAB and CAR. In 1982, EEEB which was to be involved in the study, pulled out of the team citing that its participation was not warranted in light of the nature of the study. It, however, agreed to abide by the recommenda- tions of the study. Even though the design of the first phase of the Flood Control Program was completed in 1985, additional studies would be needed to ascertain more fully its benefits, identify the beneficiaries in the light of anticipated urban development growth and thus to design an effective cost recovery plan. Further efforts are also warranted to define  - 9 - the relative role of various planning agencies, particularly CAR, in the implementation of the flood control program. The recommendations of the Pollution Abatement Study, also completed in 1985, are currently under review by EAAB before detailed engineering and cost recovery studies could be undertaken. Technical assistance has been provided under the Fourth Bogota Project to undertake these studies. Annex 5 provides a comparison of actual and appraisal timeframes for the implementation of various project components under Loan 1697-CO. 3.06 Because the actual water demand was substantially below the appraisal projections throughout the project period (see para. 4.02), major water shortage problems (experienced in the 1950's and 1960's) were not evidenced as a result of above-mentioned implementation delays under both loans. However, the deletion of a major transmission line (Usaquen- Parque-Nacional-Casablanca) from the original scope of the Second Bogota Project -- stemming from EAAB's financial constraints -- meant further delays in coping with the water shortage problems of the densely populated southwest area of Bogota. This problem is currently addressed under the Fourth Bogota Project. Procurement 3.07 Procurement was done in accordance with Bank's guidelines. In line with appraisal expectations, most contracts for civil works (except for the Chingaza tunnel contract) pipes and consultant services were awarded to local firms. Most equipment (water meters, construction, maintenance, and communication equipment) were purchased from foreign suppliers. Because of the technical complexity of the Chingaza project, several change-orders were issued during project execution. In the case of Loan 1697-CO, the Bank had to cancel US$2.1 million representing misprocurement that resulted from two civil works contracts (Fucha canal interceptor) not being awarded to the lowest evaluated bidder. Project Costs 3.08 A detailed comparison of appraisal and actual project costs is presented in Annexes 6 and 7, and summarized as follows: Appraisal and Actual Project Cost 1/ (Current Prices) US$ aillion Appraisal Variance Estimate Actual % Loan 741-CO Physical Components 96.2 167.8 74 Consultants and Studies 7.5 13.9 85 Total 103.7 181.7 75  - 10 - Loan 1697-C0 Physical Components 52.1 44.1 (16) Studies, Engineering and Administration 10.6 14.8 40 Total 62.7 58.9 (6) 1/ Contingencies included and prorated; interest during construction excluded. As noted from the above table, in the case of Loan 741-CO, there is a significant difference between appraisal and actual project costs, attributable mostly to delays in Chingaza tunnel construction (para. 3.04). Actual costs expressed in local currency, however, are considerably higher than appraisal estimates due to a higher-than-anticipated devaluation, coupled with higher levels of inflation. In the case of Loan 1697-CO, the actual project cost is 6% lower than the appraisal cost, due primarily to an overall reduction in the provision of trunk sewers and drainage works (para. 3.03). For both loans, however, there was a significant increase in the consultant costs compared to the appraisal estimates which was required by the unexpected revisions in the project scope (para. 3.03) and the additional efforts needed to prepare follow-on investment projects. Disbursements 3.09 Allocation by category of the Bank loans (741-CO and 1697-C0) and their cumulative disbursement schedules are presented in Annexes 8 and 9. In general, disbursement lagged behind appraisal estimates, due mainly to implementation delays (particularly for Loan 741-CO). Loan 741-CO was fully disbursed over a 10-year period (against the appraisal-projected 7-year period), from FY1972 to FY1981. The loan closing date had to be extended twice -- fror the original 12/31/77 to the final 12/31/80 -- to accommodate construction delays of the Chingaza tunnel. In addition, cost overruns warranted reduction of disbursement percentage for the Chingaza civil works in October 1978. Loan 1697-CO was disbursed over a 6-year period (against the appraisal projected 4-year period), from FY1980 to FY1986. As with Loan 741-CO, the loan closing date was extended twice, from 6/30/83 to 6/30/85, to accommodate the purchase of water meters and maintenance equipment. Except for the cancellation of US$2.1 million (para. 3.07), the loan was fully disbursed at the time of closing. Reporting 3.10 Progress reports, received on a quarterly basis, were satisfactory. Delays, ranging from 5 to 20 months were, however,  - 11 - encountered in the submission of audits of EAAB's accounts. In the earlier years of project implementation, EAAB had to be constantly reminded of the audit backlogs. This situation has, however, improved during the more recent years. Performance of Consultants. Contractors, and Suppliers 3.11 The performance of the project design and engineering consultants was overall satisfactory. The technical assistance consultants who assisted EAAB with the assessment of pollution abatement and flood control problems of the Bogota River, also performed satisfactorily. 3.12 Except in the case of one major civil work contract, the performance of contractors and suppliers was satisfactory. The exception arose in the construction of the Chingaza tunnel where the original contractor (foreign) could not adequately perform due to management problems, technical difficulties as well as a lack of communication with EAAB, and a lack of familiarity with the working conditions in Colombia. Faced with an extremely slow progress of the tunnel contract, since its start in March 1972, EAAB had to cancel the contract aud rebid the unfinished portion of the contract which was subsequently awarded to a new contractor (also foreign). The second contractor had a good rapport with EAAB's staff even though there were several instances of strained rela- tionship between the contractor and EAAB concerning additional claims, which in the opinion of EAAB were too many and unfair. The performance of the second contractor was, however, overall satisfactory. His progress was, nevertheless, paralyzed on two occasions - in November 1978 and in January 1981 - following methane gas explosion in the difficult Chuzza-Ventana heading of the tunnel. The original Chingaza tunnel contractor sued EAAB for unsettled claims. The dispute was eventually settled through arbitration. IV. OPERATING PERFORNAICE 4.0; A comparison of the appraisal and actual operating performance indicaters (volumes of water produced and sold, number of connections, service level coverage, staffing, etc.) for both loans is presented in Annex 10. 4.02 For the most part of the project period, the volume of water actually sold represented only about 60 to 75% of the corresponding appraisal estimates. This situation resulted from the following two key factors: (i) an overestimate of Bogota's overall population at appraisal, based on an assumption of growth-rate in excess of 5%. The actual Bogota population, as shown in Annex 10, was only about 84% of the appraisal estimate at project completion and averaged at a 4% annual growth rate for the overall project period 1971-85; and (ii) lower-than-projected water consumption levels which were overly optimistic, particularly under  - 12 - the Second Bogota Project. Unit oonsumption per month per connection declined from 51 cubic meters in 1971 to 47 cubic meters in 1977 (as against the appraisal assumption of 78 oubio meters under the Bogota II project). Unit consumption further declined to about 36 cubic meters in 1985 (as against the appraisal assumption of 49 cubic meters under the Bogota III projeot). This stealily declining consumption trend --at an average of 2.3% annual rate-- refleoted primarily the faot that many of the new consumers oonnected to the system were low-income families with consumption below the system average. Not enough information is readily available to separate the effect of long run price elasticity on constumption levels from the income effect. The above situation led to an excess production capacity and to less revenues to EAAB than forecast at appraisal. In terms of peroentage population served, however, EAAB was able to aohieve a higher-than projected coverage in service levels - from 77% in 1971 to 96% in 1985 for water supply and from 72% to 89% for *sewerage during the same period. Underutilization problems related to the restricted transmission and distribution capacity of the oitywide network, particularly in the East and Southwest arees of the oity, are currently being addressed under the Fourth Bogota Water Project. 4.03 Unexpected problems emerged in the operation of the Chingaza tunnel following its start in August, 1983. Sign of rook failure in the pressure section (Chuza-Ventana) of the tunnel appeared in October 1983, causing a steady reduction of the flow downstream. Repair work was initially delayed due to high methane concentrations and difficulties in draining the tunnel7/. The tunnel was put back into satisfaotory operation in August 1986, after the repairs were completed (in the amount of about US$10 million). 4.04 Unaccounted-for water (UFW) remained at acoeptable levels (22% to 27%) during the period 1971-77, (except for the year 1973 when the Tibito II water scheme was started). UFW, however, exceeded 30% in the following years and reached a high 40% in 1985 (when the Chingaza scheme became fully operational). Several factors -- such as increases in main breaks resulting from an increase in operating pressure, under-registration of meters, increase in illegal conneotions, and overestimated production, etc. -- contributed to the above situation. Given the growth of marginal areas served, where operating conditions are difficult and the anticipated increase in water pressures, appraisal targets to reduce unaccounted-for water to less than 30% were optimistic, without a forceful program to reduce losses. The measures undertaken by EAAB in remedying the UFW problem were inadequate due to lack of funds to support a systematic and forceful program of leak detection. UFW control is a major objective of the ongoing Fourth Bogota Project. 4.05 EAAB's achievement was noteworthy in the productivity increase of its staff. The ratio of staff per 1000 water accounts steadily declined from 7.9 in 1971 to about 4.9 in 1985. The above staffing level is one of the lowest for similar water utilities in L&tin America. 7/ During the repair period, the Tibito scheme (built under Loan 536-CO) was placed back into full production and the El Sapo treatment plant (built under Loan 741-CO) was treating water from the Rio Blanco diversion, downstream of the tunnel failure. The shutd4wn, however, affected electricity production.  - 13 - V. FINANCIAL PERFORMANCE Financial Results 5.01 EAAR had a weak financial performance in several years, but on balance, achieved a fair degree of financial self-sufficiency under Loans 741-CO and 1697-CO. EAAB's financial statements are presented in Annex 11* A narrative summary of TAAB's historical performance during the project period is provided below. 5.02 EAAB's financial performance was satisfactory in 1971 when Loan 741-CO was appraised. However, because of increasing projects costs and inadequate tariff increases, EAAB's performance deteriorated in the following years and remained weak until 1975. As the pace of project investments was accelerating, EAAB increased tariffs by 30% in 1975. Moreover, EAAB introduced in 1976 monthly tariff increases of 3% which more than compensated for inflation. With these measures, EAAB maintained a satisfactory financial performance through 1978. EAAB's performance, however, deteriorated markedly in 1979, following the appraisal of Loan 1697-CO, when the Government reduced the monthly tariff increases from 3% to 1%. In 1980, EAAB implemented a tariff increase of about 40%, together with a 2% monthly rate to adjust for inflation. To meet the increasing investment needs during 1980-83, EAAB obtained a US$20 million commercial bank loan which however proved to be insufficient. In 1983 (partly in preparation for the Fourth Bogota project), EAAB overcame its liquidity crisis by introducing a futher 25% tariff increase and a 1.5% monthly adjustment, in addition to obtaining a US$25 million commercial bank loan. EAAB's financial performance has been satisfactory ever since. 5.03 On balance, EAAB complied for the most part, with the rate of return convenant of 9 to 10% under Loan 741-CO and 5 to 7% under Loan 1697. EAAB's performance regarding the collection of arrears from government institutions was also good. For the most part of the project period, accounts receivable were less than 2 months old. It should be noted that by 1985, EAAB's ini'ial fixed assets had increased twenty-fold and were efficiently managed. Investment Financing 5.04 A comparison of the appraisal and actual financing plan for EAAB's investment program during the project period is shown in Annex 11. Despite its less-than projected revenues and substantial cost overruns, EAAB managed to maintain an impressive 41% contribution to investment from internal cash generation, compared to 53% projected at appraisal. The cash shortfall experienced during the project period was made up by an increase in the use of external loan funds from the appraisal projected 32% to about 42%. A summary of investment financing is shown as follows:  - 14 - P e r cae n t a g es - - - - - - 1971 -1977 1978-1985 1971-1985 Apprs l. Actual Apprsal. Actual Appra'l. Actual Investment Financing: Internal Cash Generation 28 30 75 50 53 41 Contributions 1/ 27 22 4 13 15 17 Bank Loans 39 33 14 9 19 12 Other Loans 2/ 6 15 7 28 13 30 TOTAL FINANCED 100 100 100 100 100 100 1/ Mainly from customers and developers. 7/ Includes advances from EEEB on account of participation on cost overrun of the Chingaza scheme. VI. INSTITUTIONAL PERFORMANCE 6.01 EAAB's organizational structure and the quality of its professional staff were considered adequate during the appraisal of both loans. Billing and collections were also well organized and the accounting system was satisfactory. The only major deficiencies, identified during the appraisal of Loan 741-CO were in budgeting, budget control and revaluation of fixed assets. Even though no specific technical assistance programs for institutional strengthening were included under the loans, Bank missions provided a useful assistance to EAAB in addressing problems in the above areas. During the final years of project implementation, EAAB began to out-row its management information and financial planning systems due to a rapid expansion of the service area and the number of service connections. This problem is currently addressed under the Fourth Bogota Project- 6.02 There were sporadic periods of management instability and poli- tical interference that affected EAAB's operations. This was particularly the case during 1980-81 w1hen the key staff at the top and middle management levels -- including the General Manager -- were replaced, following the appraisal of Loan 1697-CO (several months passed before vacancies could be filled). In 1984, yet another new management team took over EAAB's operations which has since provided stability and a high degree of professionalism. VII. PROJECT JUSTIFICATION Project Achievements 7.01 The Second Bogota Project was successful in providing a capacity increase of about 12 m3/sec which together with the existing Tibito scheme (capacity - about 13 m3/sec) could meet Bogota's water demand well beyond 1990 (against the projected 1985). Despite the slow absorption of the capacity increase in the following years, the project represented  - 15 - the next logical step for expanding Bogota's water supply through diversion of water from outside basins to Bogota. The Third Bogota Project sought to expand the distribution of water supply and complementary sewerage services in the low income 'barrios' of Bogota. By the end of 1985, the above two projects benefitted an estimated additional population of about 2.3 million, of whom the major beneficiaries were the urban poor. Under both projects, water and sewerage services were made affordable to the low-income families through the adoption of a more equitable tariff structure and easier payment terms for initial connection charges. The impact of the two projects would continue to increase as further *;zoiplementary works are undertaken in the areas of sewage and drainage (as p'..-aned under the Fourth Bogota Project, for example). l.ternal Financial Rate of Return (IFRR) 7.02 At appraisal, the internal financial rate of return of the Second Bogota Project was estimated at 14%, using revenues from consumer charges as a proxy for the economic benefits of the project. Power benefits of the Chingaza soheme were also included in the above estimate. Further benefits, such as those related to public health, hygiene and enhanced property values, were not however quantifiable and hence not included in the rate of return calculations. The calculation of IRR at project completion uses the same appraisal methodology and also recognizes the complementary investments made under the subsequent Third and Fourth Bogota Projects that utilize the production capacity of the Chingaza Scheme. Since such an estimate has been already made as a part of the economic justification of the Fourth Bogota Project, and since no major deviation, either in the cost stream or in the benefit stream, has been observed, the best indicative IRR estimate for the Second Bogota Project at PCR stage, is about 8% as noted in the appraisal report of the Fourth Bogota Project.8/ The lower than-projected estimate is primarily due to the cost overrun of the Chingaza tunnel, the increased cost of major transmission mains which were deferred to a later date, and a lower than anticipated unit demand. It is worth noting that the possibilities of staging the Chingaza scheme were limited because of the minimum size requirements of the conveyance tunnel (from a construction viewpoint). 8/ Staff Appraisal Report on Fourth Bogota Water Supply and Sewerage Project, Report No. 5278-CO (February 28, 1985), see Annex 15, Attachment 4, for a detailed IRR calculation.  - 16 - 7.03 Three IRR's were calculated during the appraisal of the Third Bogota Project, one for the drainage component (21%), one for the combined water and sewerage component (47%) and one for the overall project (37%). 't project completion, the IRR for the drainage component could not be estimated as most of the primary drainage subcomponents were deleted from the project scope. Using the same appraisal methodology, the estimated IRR at project completion for the combined water and sewerage component (using again revenues from consumer charges as proxy for economic benefits) is about 36% (Annex 12). This high IRR yield results from the fact that large benefits were attained with only minor investments in distribution mains and networks built under the project. VIII. BANK PERFORMANCE, CONCLUSIONS AND LESSONS LEARNED 8.01 The two projects were successful in expanding and improving water supply in the low-income areas ("barrios marginales") of metropolitan Bogota area. Even though sewerage service levels were also improved, the associated provisions of trunk mains and canalization of the city's major drainage systems (except for Fucha Canal) had to be deleted from project scope due to EAAB's financial constraints. Some of the deferred capital works of the two projects are, however, currently implemented under the Fourth Bogota Project, aimed primarily to address the water distribution restriction capacity in the East and Southwest areas of Bogota. 8.02 Implementation of the Chingaza scheme was fraught with serious contractor problems, construction difficulties and a high cost overrun. It appears, in retrospect, that project appraisal did not fully take into account the technical complexity of the Chingaza scheme, which took about 11 years to complete, as against the originally estimated 6 years. Implementation delays, also evidenced under the third project, were attributable to a slow start-up, changes in EAAB management, and the lingering financial constraiuts of EAAB. 8.03 The appraisal water demand projections were over-optimistic (para. 4.02). The declining consumption trend reflected for the most part the fact that many of the new consumers connected to the system were low-income families with consumption levels below the average. A more realistic water demand estimate could have led to the development of less abundant but closer water sources to Bogota.  - 17 - 8.04 The Bank's relationship with EAAB was good throughout the execution period. The Bank staff worked closely with the EAAB staff in the resolution of problems, particularly on project implementation and financial matters. The only irritant to the Bank's otherwise amicable relationship with EAAB was the inordinate delay in securing an interagency coordination with CAR in the conduct of the Bogota River Flood Control Study. Discussions are currently underway between EAAB and CAR with regard to a timely implementation of the first phase of the Flood Control Program once the issues of cost recovery and urban development are satisfactorily resolved. Concerning the Bogota River Pollution Abatement Program, the recommendation of a major interceptor paralleling the River -- for trans,'ort of wastewater to a central treatment plant downstream -- is currently under review by EAAB. 8.05 Lessons learned from the implementation of these projects were applied in the preparation of the Fourth Bogota Project where a greater care was given in estimating water demand and consumption levels, in undertaking more detailed surveys for complex works (such as tunnels) prior to the bidding stage, and in adopting a more realistic implementation schedule.  - 18 - ANE 1 axasA UWS: 741A-)d 1907-0 Sam DMT mum s. xo i 5 79MN W=A WM~ SMi. MM MD MADWM W C t wdth 11 f low C 741-0 1E9RD Caitiom A. lo wsii 5.02 (a) 5.02 SuboLvilo to BDm (usually) of an adts! S!asi9on deasys, awgivg bm 2 to ;D fiw stal .tatt, not I tlm fwr me a _ered audited stationta wt, hwAi mi after tim end of sudc fiscal yr. stisfactoy. 5.05 (a) 5.05 (a) EstabI a mintain tariff *ch wi Aeb tal rate of return raI bsma 4.1 ad 11.7 X i provide tb folUmig rat" of return: low 741-0 ad ftc. 1.0 to 11.61 admr 1697-0. 1971-73 (9Z); 1974-u (10() Ielas In t catnactik of fild inss - and thu 1979-e0 (7X); 1981-62 (5S) fluitim in tim rate be * r to appra 1983-c (61) projertiom - infuwicd tim actml M. UK sUm _ fully ut for 10 yae ot of thi 15 yaw prosct -od, 1971-5 3.01 (c) Ester into a satisfactory grwt with After eutamiw dlasy., cordizmtioi s addeuvd OR ad for carrying ut tie Boota bktun lAA ad AR for tbe ewA,t of de study. (Mg Ler epulatim study adn preatimi of left the Joint-study tw in 1962, btt geeI to abide by tim dud for the first pie of tbe meter stiy teCatiM. 1