Colombia - Fourth Bogota Water Supply and Sewerage Project

Docmncnt of The World Bank FOR OmCIAL USE ONLY Report No. 13473 PROJECT COMPLETION REPORT COLOMBIA FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT (LOAN 2512-CO) AUGUST 24, 1994 Infrastructure Operations Division Country Department III Latin America and the Caribbean Region This document has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  FISCAL YEAR January 1 to December 31 CURRENCY EQUIVALENTS Currency Unit = Colombian Peso (Col$) Col$ 101.2 = US$ 1.00 (1984 average appraisal assumption) Col$ 1,000 = US$ 9.88 (1984 average appraisal assumption) Col$ 113.0 = US$ 1.00 (effective January 1, 1985) Col$ 1,000 = US$ 8.84 (effective January 1, 1985) Col$ 113.6 = US$ 1.00 (January 1, 1985 appraisal assumption) Col$ 1,000 = US$ 8.80 (January 1, 1985 appraisal assumption) WEIGHTS AND MEASURES (Metric system in use throughout report) Km. = Kilometer (0.62 miles) I = Liter (0.2642 US gallons) m3 = Cubic meter (264.2 US gallons) GWWh = Gigawatt - hour (1,000,000 KWh) PRINCIPAL ABBREVIATIONS AND ACRONYMS DNP Departamento Nacional de Planeaci6n (National Planning Department) EAAB Empresa de Acueducto y Alcantarillado de Bogota (Bogota Electric Energy Company) EMPOS Empresa de Obras Sanitarias (Sanitation Works Company) EPM Empresa Publica Municipal (Municipal Public Works Company) FFDU Fondo Financiero de Desarrollo Urbano (Fund for Urban Development) rNAS Instituto Nacional de Salud (National Institute of Health) INSFOPAL Instituto Nacional de Fomento Municipal (National Institute of Urban Development) MSP Ministerio de Salud Publica (Ministry of Public Health) FINDETER Financiera de Desarrollo Territorial (Fund for urban and rural Development)  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Off ice of Director-General Operations Evaluation August 24, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Colombia Fourth Bogota Water Supply and Sewerage Project (Loan 2512-CO! Attached is the 'Project Completion Report on Colombia - Fourth Bogota Water Supply and Sewerage Project (Loan 2512-CO)" prepared by the Latin America and the Caribbean Region. Part II was prepared by the Borrower. It emphasizes the neglect of institutional aspects, the discontinuities associated with Bank supervision (due to staff turnover) and the long delays associated with cofinancing. The US$129 million loan approved on April 2, 1985, was to contribute to the on- going infrastructure investment program of the rapidly developing Bogota metropolis. The loan was closed on schedule, but $24.7 million were cancelled. The project achieved most of its physical and environmental objectives associated with providing water supply and sewerage services essential for the uninterrupted growth of Bogota. Yet it did not improve the agency's productivity and operational efficiency. The recommendations from the technical assistance consultants (unaccounted-for-water reduction, management information system, financial planning, commercial operation system) were not implemented. In particular, the project failed to implement a modern financial information system. Neither did it enhance staff skills with respect to maintenance, data processing, communication, instrumentation and leak detection. The financial rates of return obtained during project execution were lower than covenanted, pointing to the inadequacy of the tariff structure and policy. The PCR gives a satisfactory account of the project's uneven achievements, and the underlying constraints, including the politically motivated changes in top- and middle- management positions. Overall, the project is rated as marginally satisfactory, its sustainability as uncertain, and its institutional impact as negligible. The lessons learnt for this project experience parallel those of recently audited projects. No audit is planned. Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OFFICIAL USE ONLY COLOMBIA FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT (LOAN 2512-CO) TABLE OF CONTENTS Page No. P reface ........................................................i Evaluation Summary ........................................................ii Results ........................................................iii Sustainability ....................................................... iv Rate of Return ....................................................... iv Findings and Lessons Learned ............................... ........................ v Part I PROJECT REVIEW FROM BANK'S PERSPECTIVE A. Project Identity ....................................................... I B. Background ....................................................... I C. Project Objectives and Description ...................................................... 3 D. Project Design and Organization ....................................................... 6 E. Project Implementation ........................ ............................... 7 F. Execution of Components ....................................................... 8 G. Project Risks ....................................................... 9 H. Disbursements .............. .......................................... 1 1. Covenant Compliance ..................1................................. 11 J. Project Results ....................................................... 12 K. Project Benefits ....................................................... 13 L. Rate of Return ....................................................... 13 M. Project Sustainability .................... ................................... 14 N. Bank Performance and Lessons Learned ............................................. 14 0. Borrower Performance and Lessons Learned ................... ................... 15 P. Bank-Borrower Relationship ....................................................... 16 Q. Performance of Consultants and Contractors ....................................... 16 R. Project Documentation Data ....................................................... 17 Part II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE Executive Summary ............ 18 Detailed Comments . . . . . . . . . . . . . . . . . . . . . . . 20 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. l  Table of Contents (Cont'd) Page No. Part mll STATISTICAL INFORMATION 1. Related Bank Loans ....................................................... 25 2. Project Timetable ....................................................... 26 3. Loan Disbursement ....................................................... 26 4. Project Implementation ....................................................... 27 5. Project Cost and Financing ................................. ...................... 28 6. Project Results ....................................................... 29 7. Status of Loan Covenants ........................... ............................ 32 8. Use of Bank Resources ....................................................... 33 ANNEXES .............................................................. 36  -i- COLOMBIA PROJECT COMPLETION REPORT FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT (LOAN 2512-CO) PREFACE This is the Project Completion Report (PCR) on the fourth Bogota water supply and sewerage project in Colombia, financed under Loan 2512-CO for US$ 129.0 million. The loan was approved on April 2, 1985, and the project was implemented between July 1, 1985 and June 30, 1993. The original (and final) closing date was June 30, 1993, and at that time about 81% of the loan was disbursed and the remaining amount was canceled. The final disbursement was made in March, 1993 with an adjustment of US$0.5 million for the initial deposit done in March, 1994. The PCR was prepared by the Infrastructure Division, Country Department III, of Latin America and the Caribbean Regional Office. It is based on the Staff Appraisal Report, the Loan Agreement, information gleaned from the project files, materials obtained during the project completion mission and discussions with Bank staff, and with the consultants who were associated with the project. Parts I and III of this report were prepared by the Bank while Part II was prepared by the Borrower.   -II- COLOMBIA PROJECT COMPLETION REPORT FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT (LOAN 2512 - CO) EVALUATION SUMMARY Objectives i. The main objective of the project was to provide the water supply and sewerage infrastructure essential for the uninterrupted growth of Bogota. The project proposed to accomplish this objective through: a) removing constraints to EAAB's water distribution system which caused water shortages in the south western (mostly low-income) areas of Bogota; b) increasing the reliability of water supply to Bogota through the construction of a raw water storage reservoir (San Rafael); and c) improving EAAB's productivity and increasing its operational efficiency through implementation of an Action Plan and technical assistance. Implementation Experience ii. The Loan and Guarantee Agreements were signed on April 3, 1985 and became effective in July 1, of that year. There were no special conditions of effectiveness in the loan agreement. The loan closing date was set for June 30, 1993. iii. The project began at a satisfactory pace. Final designs for most of the principal construction components (tunnel, primary distribution mains, pumping stations, storage tanks) were ready from the beginning. However, start-up problems in bidding and acquisition delayed the project execution and disbursements began at a slower pace than originally expected. iv. Due to a 94% dramatic devaluation of the Colombian peso between 1985 and 1986, (an event not anticipated during appraisal), the Bank agreed to amend the Loan Agreement in order to increase the percentage financed by the Loan. v. Besides the devaluation of the peso, the inability of EAAB to improve operating efficiency as shown by: (a) high level of unaccounted-for water (UFW) ( 40%), (b) sharp increase of personnel costs (average 8% yearly in real terms between 1984 and 1991), and (c) increase of accounts receivable, caused EAAB's financial situation and cash flow  -iii- position to weaken significantly. Frequent changes in management and principal staff (5 managers from 1988 to 1993), affected continuity in policies and programs. Problems in contracting procedures and delays in the negotiation of the loan for the San Rafael reservoir and pumping station (with the OECF of Japan), caused delays in the initiation of this component of the project. At the closing date, 38% of this component had been executed; its completion is now expected to be mid -1996. In spite of improvements in accounting, tightening of financial and management efforts to negotiate more reasonable terms with the labor union, tighter supervision from 1991 to 1993, and a threat of suspension of disbursement, the Bank concluded that this loan, with 8 years of execution, would "not represent the optimal instrument to support more fundamental institutional and structural changes in the context of the current strategic consensus in Colombia to focus on assuring the sustainability of basic water and sewerage services in Bogota over the next 10-15 years." The closing date was therefore not extended to allow time to complete the San Rafael reservoir. vi. However, in order to facilitate an orderly closing and assist various measures and actions undertaken by the EAAB administration to correct its structural problems (financial, institutional autonomy, labor agreements), the Bank allowed disbursements to continue up to December 31, 1993. It also agreed to the financing of the remainder required for the completion of the San Rafael dam through a sub-loan from FINDETER under the on-going Water Supply Sector loan. At the same time, the Bank began to prepare on an accelerated basis, a new project, Santafe I, with up-front decisions and actions to address these more fundamental issues. Results vii. With the exception of the vulnerability-reduction components of the Tibito transmission pipe-line, the project achieved most of the principal physical objectives of providing water supply and sewerage services essential for the uninterrupted growth of Bogota. However, it failed to improve EAAB's productivity and operational efficiency. Although the San Rafael reservoir was not fully completed during the project, it was designed and partially financed by the loan and the works were so advanced that their final completion was assured (the dam was finished in April 1994, and the other works financed by the OECF of Japan are expected to be completed in 1996.) viii. The project provided the infrastructure required to eliminate constraints for the efficient use of the current production capacity. It thus eliminated a main cause of water shortages in the south-westem area of Bogota which has a substantial concentration of poor people. ix. The improvements of the water transmission and distribution mains, rehabilitation of the water distribution system, construction of secondary water distribution mains, sewage collectors and storm drains, and the emergency works done in 1989-1990, allowed the extension of the services (water, sewage and drainage) to 1.8 million people. Within this part of the project were plans to repair the 78 inch transmission main Tibito - Bogota,  -iv- so as to more efficiently use the production capacity of Tibito plant. However, this component was not executed; instead of the Tibito pipeline repair, the 60 inch pipeline to Suba was done. x. On the other hand, increase in productivity and operational efficiency was not achieved. The technical assistance consultants (UFW reduction, commercial operation system, managerial information system, financial planning) carried out their tasks but for various reasons, their recommendations were not implemented, or only partially in some cases. xi. The final engineering designs for the sewerage master plan were carried out with some delay and the works are included in Santafe-I project which is currently under preparation. The economic, financial, institutional and land development study related to flood control and pollution in the Bogota river was not realized. During the planning and discussions of the Santafe loan, these studies were included to be carried out as part of the new project. Sustainability xii. The benefits obtained through the rehabilitation and improvement of the water transmission mains and secondary network are sustainable in the future, with adequate maintenance and within a sound institutional framework. xii. The sustainability of the benefits expected from institutional strengthening will depend to a great extent on the future institutional structure approved by the Municipal Council of Bogota. Sustainability would be assured if EAAB is allowed to have autonomy, independence and no political interference in personnel, budgeting, contracting and planning. The continuity, qualification and experience of the management and staff also will be key factors. xiv. The sustainability of benefits expected would be harmed if institutional issues such as unfunded pension liabilities, UFW, adequate and sufficient maintenance, operational efficiency, improvement in billing and revenue collections, cost accounting and financial controls, and inadequacies of the present tariff structure and level are not satisfactorily resolved. Rate of Return xv. The rates of return obtained during the project execution were always lower than those covenanted under the Loan Agreement (see para. 42). Figures for 1987, 1990, 1991 were reported by EAAB auditors as 3.19%, 2.05%, and 1.85% respectively (against 4% for 1987 and 4.5% for 1988 and thereafter). In 1992 it was estimated as 2.1%. However, if rate of return calculations were based upon fully reevaluated fixed asset and pension liabilities, the resulting figures would be negative, reflecting the inadequacies of the tariff structure and tariff policy and the consequent decapitalization of the productive assets.  xvi. Low internal cash generation caused by the structural inadequacies of current water and sewerage tariffs, high UFW rates (more than 40%), increase of personnel cost/m3 sold (200% between 1984 and 1992), and the low billing and collection efficiency, are the main factors which have affected the rate of return. Findings and Lessons Learned xvii. An enabling institutional environment and the commitment of community leaders, with a minimum of personal and political interference, is a critical factor for the success of projects with public entities providing essential public utility services. Adverse political environment or interference generated by political or private interests weaken the institutions. At the same time, inappropriate pricing policies that do not provide the incentives and the means for the utility provider to earn a reasonable and justifiable return on the productive assets in use, and that do not allow for maintenance of the tariff levels in real terms, will inevitably lead to decapitalization, loss of productive assets, inadequate maintenance, increase in vulnerability of the system to frequent and sudden breakdowns and eventually to a collapse of the service itself xviii. In companies such as EAAB, the general Manager of the company should always be able to count on the support and cooperation of the Mayor of the city, the Municipal Council, and the National Government. This was not frequently the case during this project. xix. For approval of future loans to companies such as EAAB, adequate independence and autonomy in managing, hiring of personnel, contracting and planning, should be a pre- requisite. xx. At the same time, a clear and transparent regulatory regime should be in place to ensure that the interest of the service provider and of the consumers are balanced through the tariff structure that has incentives for performance and penalties for lack of performance, so that both the interests of the service provider and of the consumers are adequately safeguarded. The mechanisms for approval of structural changes and for adjustments of tariffs in real terms should be clearly articulated and insulated from political interference. Unfortunately, these results cannot be attained through enhanced technical assistance alone. xxi. There should be greater emphasis upon monitoring indicators and detailed project implementation schedules and investments to ensure better management of project works. xxii. In complex projects with many small contracts, it might be more convenient to either delegate a major part of the bidding review to the Bank's local representative, or to an internationally-recognized consulting company which has experience in managing such works. Tenders directly supervised by Bank staff should be limited to key areas of concern.  COLOMBIA PROJECT COMPLETION REPORT FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT (LOAN 2512 - CO) PART I - PROJECT REVEEW FROM BANK'S PERSPECTIVE A. Project Identity Project Name: Fourth Bogota Water Supply and Sewerage Project Loan Number: 2512 - CO RVP Unit : Latin America and Caribbean Region Country Department In Country : Colombia Sector . Urban Infrastructure Subsector : Water Supply and Sanitation B. Background 1. The Water Supply Sector. At the time the project was initiated, the water supply and sewerage sector in Colombia was under the responsibility of the Ministry of Public Health (MSP) which, in coordination with DNP, formulated national sector policies. Two institutions, the National Institute for Urban Development (INSFOPAL) and the National Institute of Health (INAS), were responsible for implementing these policies in urban and rural areas respectively. Both of these institutions had central planning and supervisory functions and acted as financial intermediaries for sector investments. The Urban Development Fund (FFDU) of the Central Mortgage Bank also provided financing for investments in the urban sector. 2. On the local level, different types of institutions had responsibilities for constructing, maintaining and operating water supply and sewerage service facilities. In 28 principal cities, where about 75% of Colombia's urban population was concentrated, Municipal Public Works Companies (EPMS) were in charge of water and sewerage services, and in many instances, also provided other public services. In most smaller towns, water supply and sanitation services were provided by Sanitation Works Companies (EMPOS) over which INSFOPAL exerted considerable influence. In rural areas, water and sanitation facilities were built, operated and maintained by departmental offices of INAS in coordination with the beneficiary communities.  -2- 3. The performance of most sector institutions at both the national and local levels in Colombia, has demonstrated much need for improvement. Weak administration and management and poor financial performance were the main reasons precluding a more efficient functioning of many operating entities. The combined effect of low tariff levels and poor commercial practices, with fast-rising operating costs (including personnel costs), caused a perennial financial problem for many companies. Frequent and often politically-motivated changes in top- and middle-management positions and shortages of funds hindered financial and investment planning. These shortcomings, together with general lack of a sufficiently trained work force, have manifested themselves, also, in poor maintenance and operation of many water supply and sewerage systems and have been reflected in generally high levels of unaccounted for water. 4. During the period of project preparation, the Government, under its plan for "development with equity," formulated its goal of providing adequate water and sanitation services to all its citizens. For 1990, it projected service level goals of 90% for water supply and 80% for sewerage for urban areas, and service levels of 40% for water supply and 35% for sewerage for rural areas. This meant reaching an additional 5.5 million people in urban areas and about 2.0 million in rural areas. The total cost was estimated at about US$ 1,700 million (1983 prices) and called for annual investments of about US$ 300 million, not including operation and maintenance costs and investments needed to rehabilitate and repair existing facilities. To achieve the 1990 goals, historic annual average sector investment levels would have had to be tripled, a task considered difficult during project preparation, due to the weaknesses of the sector institutions and prevailing budgetary constraints. 5. Since 1968, the Bank has made 10 loans totaling US$ 251.9 million, for water supply and sewerage development in Colombia. Bank funds accounted for about 70% of the external loan funds made available to the sector. Seven loans, US$ 184.8 million in total, were made to EPMs in Bogota, Cali, Palmira and Cucuta. By far, the largest borrower has been the Bogota Water and Sewerage Company (EAAB) to which the Bank lent US$ 132 million in three lending operations to finance investments of about US$ 450 million. 6. Of the Bank-financed projects, the projects in Bogota fared better than others in the sector. While EAAB developed into a relatively efficient institution, the performances of the other companies receiving Bank financing (Cali, Palmira and sub borrowers under INSFOPAL loans) have not shown similar results. Although most of the projects were physically completed after lengthy delays, institutional development goals were only partially achieved and the financial performance of the entities in most cases did not improve to the degree originally envisaged. 7. EAAB Performance Under Past Loans. The first Bank loan to EAAB, Loan 536-CO, was made in 1968 to finance expansion of the Tibito water supply and transmission system. This project was successfully completed in 1976. The second operation, Loan 741-CO, made in 1971, financed construction of the Chingaza diversion  -3- (a dam, 38 km. of tunnel and 6 km of pipe), the Wiesner water treatment plant, the Santa Ana treated water storage reservoir, a 20 km. treated water transmission main and 100 km. of primary distribution mains. 8. EAAB faced various complex administrative and technical problems during the implementation of Loan 741-CO. Major revisions were made in project scope to include new diversion works to Chingaza reservoir (Guatiquia tunnel) aimed at increasing water yield by 4.5 m3/sec, and deletion of a 25 km. major water transmission line (Usaquen- Parque Nacional-Casablanca) and about 50 km. of primary distribution lines. There were also significant increases in the length of secondary water network, sewage collectors and drainage to accelerate coverage of these services, and reduction in the length of primary distribution main, acquisition and installation of telemetry and communications equipment, needed for the Chingaza system. The contractor, originally responsible for Chingaza tunnel construction (1972), was unable to deliver and the tunnel works were thus re- tendered and awarded to another 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; the resulting delays increased the cost of the Chingaza diversion from US$ 85 million at appraisal to a final cost of US$ 300 million. 9. The third Bank loan to EAAB, Loan 1697-CO, made in 1979, financed primary water distribution mains, secondary water, sewerage an drainage networks, drainage canals and sewerage interceptors. In 1981, water shortages began occurring in the south- western area of Bogota, four years earlier than projected in a 1975 study. These unexpected shortages confirmed the need for a major transmission main similar to the one eliminated from the second project. EAAB and the Bank agreed that a new master plan was needed before the transmission main could be constructed. Accordingly, the third project was modified to make funds available for preparation of such a master plan. It was also decided to delete from the project construction of 25 Km. of primary distribution mains and concentrate instead on the construction of secondary water and sewerage networks. C. Project Objectives and Description 10. Project Objectives. The main objective of the project was to provide the water supply and sewerage infrastructure essential for the uninterrupted growth of Bogoti. The project proposed to accomplish this objective through: (a) Removing constraints to EAAB's water distribution system which caused water shortages in the south western (mostly low-income) areas of Bogota  -4- (b) Increasing the reliability of water supply to Bogota through the construction of a raw water storage reservoir; (San Rafael); and (c) Improving EAAB's productivity and increasing its operational efficiency through implementation of an Action Plan and technical assistance. 11. Project Description. The project included high priority works in EAAB's 1985- 92 investment program, technical assistance for the institutional improvement of EAAB, and technical assistance to advance the preparation of a possible Bogota River Flood Control and Water Pollution Mitigation operation. The project comprised the six components described below: (a) Water Transmission and Distribution Improvements (Part A). Low water supply pressures were experienced by about 200,000 residents living in the south-western area of Bogota. In addition, the available capacity of the Chingaza project partially financed under (Loan 741-CO) could not be fully utilized because of restricted transmission capacity from the Santa Ana distribution reservoir at Usaquen, storing treated Chingaza water. Low water pressure was also experienced by people living in the fringes of the city and there were demands for EAAB to extend services beyond these areas to accommodate new urban developments. This part of the project was aimed at solving these problems through construction of transmission and distribution mains adequate to meet 1995 projected demand. The works include the following: I. Construction of about 9 km. of rock tunnel. 2. Construction of about 43 km. of transmission and primary water distribution mains. 3. Construction of 6 booster pumping stations. 4. Construction of 5 storage tanks. (b) Distribution System Rehabilitation (Part B). In 1983, EAAB experienced 9,300 breaks in its water mains. Most of these breaks occurred in asbestos cement (AC) pipes, and the acidity of the soils in the Bogota area (up to PH 5.5) was the suspected cause of this deterioration. Similar deterioration was noted with cast iron valves and small diameter galvanized iron pipes in the system. Under this component of the project, the Bank financed the cost of materials and part of the replacement and repair work performed by private contractors in 280 km of water distribution mains and repair of water main breaks and leaks. During the three years before the project, EAAB experienced five breaks in the 78-inch Tibito - Casablanca main transmission line constructed under Loan 536-CO. This pipeline was constructed with pre-stressed concrete  -5- pipe. The failures resulted from corrosion of the pre-stressing wires used in the manufacture of this type of pipe. The proposed rehabilitation for this transmission pipe was based on the results of the survey carried out by a panel of experts, financed by the Bank. (c) Secondary Water Networks and Service Connections in Low Income Neighborhoods (Part C). There were a number of areas within the Capital District of Bogota which developed without access to water, sewerage and drainage systems. EAAB had a program whereby communities could apply to it for financing and installation of the required systems. This component included 140 Km. of water mains, 280 Km. of sewage collectors and 420 Km. of storm water drains. Also included was the cost of making about 100,000 water and sewerage connections under the same program, and replacement of about 260,000 water meters, in addition to having 40,000 new meters installed on new water connections in low-income areas. (d) Raw Water Storage (Part D). This component of the project included the construction of the San Rafael reservoir to provide raw water storage for the new Wiesner water treatment plant when the Chingaza tunnel is out of service for inspection and maintenance. The reservoir would provide 50 million m3 of water storage in a natural depression located near the Wiesner plant. A pumping station was to be constructed to pump the water from the reservoir to the plant, and was to be financed with export credits (from the OECF, Japan). (e) Implementation Study and Design for Mitigation of Pollution of the Bogota River and Flood Control (Part E). The discharge of untreated domestic and industrial wastes into the tributaries of the Bogota River has been a chronic source of serious pollution problems both for those living close to the river and others downstream from the city. This pollution has been a threat to the health of persons living in communities which use the river for drinking water and irrigation, and it also affects the use of the Magdalena River for water supply, fishing and recreation. The Bogota River joins the Magdalena 120 km. southwest of the city. The Bogota River also periodically overflows its banks causing damage to existing urban areas and preventing further development in the flood plain of the river. As a result of two studies financed through Loans 741-CO and 1697-CO, technical solutions had been identified. However, the economic justification and investment priority were not clear.  -6- Study of the institutional, developmental, financial and cost recovery aspects of implementing the technical solutions was to be financed with this part of the loan. (f) Institutional Strengthening of EAAB (Part F) The Action Plan agreed to under the project was crucial, given the limited results of previous efforts to modernize EAAB, improve efficiency and create a stable operating framework. Technical assistance under this part of the project was aimed at carrying out the Action Plan in four areas: Management information and control systems; Reduction of unaccounted-for water; Commercial procedures; and * Training of personnel. D. Project Design and Organization 12. Conceptual Foundation. Responsibility for the design of the project was shared by the National Government, the Capital District authorities and the Bank, and was based on the Bank's previous experience with the EAAB system, acquired during the execution of three previous loans. The project was aimed at satisfying water demand needs of the city of Bogota, up to the year 2005, and also to increase the sewerage service coverage to 91%. The project was consistent with the Bank's strategy of lending on a selective basis to the larger municipal companies with a commitment to improve their standards of performance, assisting in this way the government's efforts to extend improved water supply and sewerage services to large segments of the population (including the urban poor). 13. The project was also in line with Bank's general approach of lending for infrastructure in Colombia, emphasizing quick yielding investments and a more intensive use of existing facilities before addition of new capacity. It had a high social impact focus with 54% of the beneficiaries consisting of the urban poor of Bogota, who would be provided with dependable water supply at affordable rates. Direct beneficiaries of the project were an estimated 2.9 million residents of Bogota, distributed as follows: 1.0 million who would receive water services, about 1.1 million existing consumers whose services would be upgraded in quantity and quality through elimination of supply interruptions, and 0.8 million who would receive sewerage and drainage services. 14. The package was designed with the expectation that the financial situation of EAAB would be as estimated in the appraisal report, the required co-financing for San Rafael dam and pumping stations would be available on time, and the bidding and procurement processes would be done without significant delays.  -7- 15. Project Preparation. In 1981, areas in the south-western area of Bogota began experiencing water shortages due to restrictions in the distribution system. In response to these shortages, EAAB requested the Bank to reallocate funds from Loan 1697-CO to finance a distribution master plan study, aimed at identifying the least-cost solution for distributing water to meet existing and future requirements. The first stage of the plan became the basis for the project. Technical assistance for addressing the development and implementation issues associated with the proposed Bogota River pollution and flood control programs as well as technical assistance for the institutional strengthening of EAAB were added to the project as a result of analysis and discussions with EAAB during project preparation. A Bank appraisal mission visited EAAB in June and July of 1984 and the loan was approved by the Board on April 2, 1985. 16. Roles and Responsibilities. The role and responsibilities of EAAB were clearly defined in the project but they proved to be beyond the capacity of EAAB to carry out, primarily because of the lack of an enabling institutional framework, law Municipal Council support and lack of managerial autonomy. E. Project Implementation 17. The Loan Agreement was signed on April 3, 1985 and became effective on July 1, 1985. There were no special conditions of effectiveness in the Loan Agreement. The loan closing date was set for June 30, 1993. 18. The project began relatively satisfactorily. Final designs for most of the principal construction components (tunnel, primary distribution mains, pumping stations, storage tanks) were ready from the beginning. However, early problems in bidding and contracting resulted in delays in project execution and disbursements. Tendering of the San Rafael dam caused great controversy and legal actions against EAAB. 19. Due to a dramatic devaluation of the Colombian peso by 94% in two years (1985- 1986), an event not foreseen in the SAR, the Bank agreed to amend the Loan Agreement in February, 1987 in order to increase the percentage financed by the Loan as follow: * Civil works Part A.1; 100% of foreign expenditures and 40% of Local expenditures (instead 65% of foreign expenditures). . Civil works for part A (other than part A. 1), B, C, and D 40% of local expenditures (instead 32%). 20. Besides the devaluation of the local currency, the inability of EAAB to improve operating efficiency as evidenced by a high level of unaccounted-for water ( 40%), high increase of personnel costs (average 8% yearly in real terms between 1984 and 1991), and increase of accounts receivable led to a worsening of its financial situation. Frequent changes in management and principal staff (5 Managers from 1988 to 1993), affected continuity in policies and programs. Problems in the contracting processes and delays in  -8- the negotiation of the loan for the San Rafael reservoir and pumping station (with the OECF of Japan), caused delays in the initiation of this component of the project. At the closing date, 38% of this component had been executed, and its completion is now expected only by mid 1996. In spite of improvements in accounting, tightening of financial and management controls and efforts to negotiate more reasonable terms with the labor union, and with closer Bank supervision from 1991 to 1993 and a threat of suspension of disbursement, the Bank came to the conclusion that after 8 years of execution this loan would "not represent the optimal instrument to support more fundamental institutional and structural changes in the context of the current strategic consensus in Colombia to focus on assuring the sustainability of basic water and sewerage services in Bogota over the next 10-15 years." The closing date was thus not extended to complete the San Rafael reservoir. 21. However, since EAAB had taken various measures and actions which were underway to correct its structural problems (financial, institutional autonomy, labor convention), the Bank allowed disbursements up to December 31, 1993 and agreed to the financing of the other works required for the completion of the San Rafael dam through a sub-loan from FINDETER under the on-going Water Supply Sector loan. At the same time, the Bank began to prepare on an accelerated basis, a new project, SANTAFE I, with upfront decisions and actions to address these more fundamental issues. F. Execution of the Components 22. Part A-Water transmission and distribution improvements. This component was carried out without major problems and on time. This was true of the main component the Santa Ana - Parque Nacional tunnel (9km.) construction, as well as the 77 Km. of primary water transrnission mains (79% more than appraised), 8 booster pumping stations (2 more than appraised) and 9 storage tanks (4 more than appraised, 45,000 m3. additional capacity). 23. Due to a severe rainy season in 1988-1989, emergency works were executed with local funds to assure water supply to the south-western area of Bogota. Works executed included the raising of the height and the width of Chisaca dam (adding 2,200,000 m3 of storage capacity), rehabilitation of La Laguna water treatment plant, and the construction of two additional water tanks. 24. Part B-Distribution system rehabilitation. The replacement and repair of water distribution mains and the repair of water main breaks (240 km.), included in this component were executed successfully. However, the repair of the 78 inch Tibito pipeline was not done. ARer having diverse opinions from EAAB consultants, there was not a consensus on the technical solution needed to rehabilitate this pipeline and it was decided instead to postpone the works and construct a 60 inch pipeline to Suba. EAAB argued that this pipe would operate independently of the other mains included in the transmission plan and would serve zones with deficiencies of water supply.  -9- 25. Part C-Secondary water, sewerage and drainage network and service connections. 600 km. of secondary water, sewerage and drainage network were constructed (as compared to 840 km. envisaged at appraisal), 110,000 service connections were made (versus 100,000 estimated at appraised) and 450,000 water meters were installed (versus 260,000 estimated at appraised). 26. Part D-San Rafael - Reservoir. Although the San Rafael Dam was only 38% complete at the closing date of the loan, financing of the remaining works was assured through a FINDETER sub-loan. The contract for the pumping station and equipment financed by OECF of Japan had not been awarded by the closing date but these are now signed and the works are expected to be operational shortly. The San Rafael Dam has been completed and complementary works, including the pumping station, are expected to be finished in April, 1996. 27. Part E- Bogota River Pollution and Flood Control Planning Project. During the preparation and analysis of the terms of reference for the studies included in this component, the study of the Rio Bogota decontamination and hydraulic improvement, (financed with Loan-1697-CO) were completed, and based on these results, the Bank and EAAB agreed to postpone the design of the sewerage treatment plant. New terms of reference were discussed and consultants were hired for Rio Bogota Sewerage Master Plan study. However, as the Mayor of the city (in March 1990) invited three international consortiums to participate in the construction and operation of three sewerage treatment plants (by concession), the Bank hired an international consultant to review the alternatives available to solve the Rio Bogota problem. The consultant prepared preliminary designs appropriate for the Rio Bogota interceptor and proceeded with engineering designs for the first stage of the interceptor Torca -Salitre- Fucha. During the preparation of the Santafe Project, the Bank and EAAB discussed the possibility of carrying out the economic, institutional and land development study related to the control of flooding and pollution in the Rio Bogota as part of this project. A training program was executed with the WHO/PAHO, and scholarship courses and seminars were utilized to help improve staff performance. 28. Part F-Institutional Strengthening. The studies and technical assistance (financial information systems, commercial system, and unaccounted-for water, (UFW) were carried out, but their implementation was not successful. For example, the UFW after some reduction to 39% in 1985 grew to about 40% in 1991, the (SAR target was 26% in 1990), and problems in implementation of a financial information system resulted in negative opinion of the auditors. Purchasing of equipment for maintenance, data processing, communication, instrumentation and leak detection were done but full use of these suffered from staff deficiencies. G. Project Risks 29. The appraisal report identified as one of the principal risks of the project, the possibility that internal cash flow would fall short of needs to meet the cost of the project  -10- if efforts to contain operating costs were not successful. The risk of potential delays in project implementation and in finalizing co-financing was also flagged. At the same time, as the availability of export credits could not be confirmed in advance, this was identified as a risk for project implementation. During the implementation of the project it was evident that these risks were correctly identified. As a consequence of high operating cost, cash flow problems occurred, with a cash deficit of about US$ 35 million at the end of 1992. The cost of personnel/m3 of water sold grew from Col$69.2 in 1984 to Col$ 138.7 in 1992 (both in 1991 prices). Personnel cost increased from 62% of total operating cost in 1984 to 79% in 1991. The rate of return on net fixed assets was 3.19% in 1987, 2.05% in 1990, and 1.85 in 1991, compared with an average of 13% estimated in the appraisal report, or those covenanted in the Loan Agreement (see para. 42). With respect to delays in project implementation, the delay in the execution of San Rafael dam and the complementary works also occurred. This was due to the extended negotiation of the loan with the Government of Japan and various claims during the bidding process. 30. Inflation and exchange rate changes in Colombia during the project execution period of the project were not in line with estimates made in 1984. Inflation was assumed at 20% for 1985 and 1986 and 18% for the following years; the exchange rate was assumed Col$114 in 1984 and Col$288 in 1992). 31. The comparison between the assumptions and the actual data is as follows: YEAR LOCAL INFLATION EXCHANGE RATE __ _ (SAR) REAL (SAR) REAL 1985 20.00 24.00 140.00 142.30 1986 20.00 18.90 158.00 194.30 1987 18.00 23.30 174.00 242.60 1988 18.00 28.10 189.00 299.20 1989 18.00 25.80 207.00 382.60 1990 18.00 29.10 231.00 502.30 1991 18.00 30.40 257.00 633.00 1992 18.00 27.00 288.00 759.30 These two factors contributed adversely to the financial situation of EAAB, and consequently to project execution, through increasing the burden of debt service, and costs of components in local currency. 32. Political interference was not considered a major risk at the time of project preparation. EAAB's administrative structure, quality and stability of management and administrative staff were also considered satisfactory at the time of appraisal. However,  -1 1- during the execution of the project, political interference occurred in management, staffing and contracting decisions and actions. For example, high non-wage benefits were agreed to with the unions. In 1987-1988 there was a massive increase of staff, (between 500- 600), with sporadic ad-hoc transfers to the Capital District and politically-influenced agreements with neighboring municipalities to supply water. At the same time, EAAB managers lost autonomy and independence from the Mayor and the District Council. 33. The contribution of EAAB in financing of the San Rafael dam, did not occur because of its precarious financial condition. H. Disbursements 34. The disbursement of the loan began slowly during the first years due to delays in preparation of bid documents and getting contracts signed. There was a maximum lag of 71% between planned and actual figures during the 1987 to 1990 period. Total disbursement reached 81% of the loan, (US$104,376,620.96) with the remaining amount canceled. Categories 1, 2, and 4 were disbursed below estimates (83%, 96%, 63%) respectively, while in category 3, the disbursement was larger than planned (119%). I. Covenant Compliance 35. Despite compliance with some of the covenants, the crucial financial and institutional efficiency areas reflect the greatest non-compliance, as indicated below: * The institutional strengthening of EAAB according to the Action Plan agreed with the Bank (section 3.01 (e) of Loan Agreement) was not achieved. The inability of EAAB to improve operational efficiency by reducing unaccounted for water, controlling personnel costs and improving accounts receivable were the main areas of non-compliance. Separate accounts for SOE were not maintained satisfactorily. The minimum rate of return of 4.5% agreed to at negotiations for 1988 and thereafter was not reached. Rates of return of 3.19, 2.05 and 1.85 were reported by auditors in 1987, 1990 and 1991, respectively, against commitments of 4, 4.5 and 4.5% respectively. Moreover, the rate of return figures did not always reflect the true situation because some completed works were not incorporated correctly into fixed assets (they were maintained as works in progress). Also, during most of the time, fixed asset were not reevaluated and pension liabilities were not correctly estimated, which inflated the revenues. The inability to improve operational efficiency, large increase (yearly average of 8.2% in real terms) of personnel costs due to increasing pension obligations and overtime, the high ratio between accounts receivable and  -12- monthly sales, arrears on accounts payable to contractors and suppliers, etc., show that EAAB did not carry out its operations and conduct its affairs in accordance with sound administrative financial and public utility practices under the supervision of qualified and experienced management assisted by competent staff, as was agreed in Section 4.01 of the Loan Agreement (although subsequent to the full impact of the crisis, some corrective actions were initiated). Although average tariffs grew from 1984 to 1992 by 4.8 % annually in real terms, it was not enough to meet the rate of return covenanted, due to higher growth of operational costs (8.2%) and high UFW (42% ). In addition, the structure of tariffs was not appropriate and did not reflect the changing pattern of demand and the incentives that were needed to ensure economic use of the production and distribution capacities. J. Project Results 36. Achievement of Objectives. The project achieved most of the principal physical objectives of providing water supply and sewerage services essential for the uninterrupted growth of Bogota. However, it did not reduce the vulnerability of the San Rafael Dam and Tibito transmission pipeline and it failed to improve EAAB's productivity and operational efficiency. It provided the infrastructure required to eliminate the existing constraints for the efficient use of the current production capacity which had caused water shortages in the south-western area of Bogota with a substantial concentration of poor people. 37. The improvements of the water transmission and distribution mains, the rehabilitation of the water distribution system, construction of secondary water distribution mains, sewage collectors and storm drains, and the emergency works done in 1989-1990 allowed the extension of the services (water, sewage and drainage) to 1.8 million people. Within this part of the project, repair of the 78 inch transmission main of the Tibito-Bogota, to more efficiently use the production capacity of the Tibito plant was not done. Instead of the Tibito pipeline repair, a 60 inch pipeline to Suba was installed. 38. With respect to the increase in reliability of water supply to Bogota, although the San Rafael reservoir was not fully completed during the project, it was designed, and financed and its execution was so advanced that its completion was foreseeable (the dam was finished in April 1994, and the other works financed by the OECF of Japan are expected to be completed in April, 1996). The objective of increasing reliability of water supply to Bogota was partially achieved with some delays. The non-completion of the Tibito transmission pipeline rehabilitation affects the reliability of future water supply through this area but the proposed Santafe Project will include these works. 39. The technical assistance consultants (for UFW reduction, commercial operation system, managerial information system, financial planning), carried out their tasks but their  -13- recommendations were not implemented, or only very partially because of financial, administrative and political constraints. The final engineering designs for the sewerage master plan were carried out with some delay and the works are included in the Santafe project in preparation. The economic, financial, institutional and land development study related to flood control and pollution in the Bogota river was not done. During the planning and discussions of Santafe Loan, these studies were included to be carried out as part of the new Loan. K. Project Benefits 40. Direct beneficiaries in the city of Bogota were estimated at 2.9 million of which, 1.0 million would receive water service, 1.1 million existing consumers would be upgraded in quantity and quality through elimination of supply interruptions, and 0.8 million would receive sewerage and drainage services. It was estimated that 54% of these beneficiaries would be urban poor, while the beneficiaries of the sewerage and drainage works would be 100% urban poor. In 1983, the population served with water in Bogotai was estimated during appraisal at 4,179,000 (95% of total population), while in 1993 it was estimated at 5,300,000. The increase of access to water supply thus benefited 1.1 million people. 3,870,000 inhabitants had sewerage services in 1983, equivalent to 85% of total population. The estimation of sewerage service coverage in 1993 was 88% (4,590,000 inhabitants. The increase of beneficiaries with access to sewerage service was 720,000. 41. Although not all of the new users (connections) of water and sewerage services are direct beneficiaries of the project (because the new legal urban developers also directly provided similar service, and in parallel there were other programs such as IDB-Ciudad Bolivar, FFDU-F1NDETER, the project contributed a great part of this improvement. The improvement of water transmission mains and the rehabilitation of distribution system improved overall access to water and sewerage service. Although the benefits of the institutional strengthening and technical assistance were not achieved during the project implementation period, the analytic basis was established for more thorough reform of these areas at a later date. L. Rate of Return 42. The financial rate of return obtained during the project execution was always lower than Loan Agreement commitments (3.5% for 1985 and 1986, 4% for 1987 and 4.5% for 1988 and thereafter based on net fixed assets). The 1987, 1990, 1991 figures reported by EAAB auditors were 3.19%, 2.05, 1.85 respectively. In 1992 it was estimated as 2.1%. However, if rate of return calculations were done considering properly-reevaluated fixed assets and pension liabilities, the rate of return would probably be negative. This would reflect the inadequate tariff structure and level and the failure to adjust tariffs in line with changing demand patterns and with incentives for economic use of the production and distribution capacities in the system.  -14- 43. Low internal cash generation, resulting from the inadequacies of tariffs, high unaccounted for water ( higher than 40%), increase of personnel cost/m3 sold (200% between 1984 and 1992), and the low recovery in accounts receivable, are the main factors which affected the rate of return. M. Project Sustainability 44. The benefits obtained through the rehabilitation and improvement of the water transmission mains and secondary network are sustainable in the future, with adequate maintenance in a sound institutional framework. 45. The sustainability of the benefits expected from institutional strengthening will depend to a great extent on the future institutional structures approved by the Municipal Council of Bogota, especially if it allows EAAB to be managed with autonomy, independence and without political interference in personnel, budgeting, contracting and planning. The continuity, qualification and experience of the management and staff also will be essential. At the same time, the sustainability of the benefits expected would be negatively affected if institutional issues such as pension liabilities, unaccounted for water, maintenance programs, operational efficiency, receivables, management, cost accounting, and tariff structure are not solved satisfactorily. N. Bank Performance and Lesson Learned 46. Preparation and Appraisal. During the project identification, preparation and appraisal, the Bank, incorporated its experience and knowledge of EAAB, based on lessons of previous loans and its estimates of water demand and consumption levels and detailed survey of complex works, detailed engineering designs prior to bidding stage and realistic implementation schedules. The project risks were correctly identified except in the case of the institutional framework where the impact of political factors was not fully considered. 47. Supervision. Project supervision utilized 137.3 staff weeks during the implementation period. Between 1985 and 1993, fourteen supervision missions visited Colombia. However, more intensive and continuous supervision were needed in the critical period (1989-1991) when problems became more serious. 48. Although the project rating was satisfactory in the first six years (1985-1990) with an overall rating of 1, there were later problems and delays in bidding and procurement processes and increases in local costs due to high devaluation of the local currency. The institutional and financial structure of EAAB was also becorning weaker from as early as 1988. Due to non-compliance with covenants, shortfall of funds, delays in procurement and bidding processes (mainly in the San Rafael Dam), delays in execution of technical assistance and studies and difficulties in improving operational efficiency, the project was rated 2 late in 1990, and 3 in August, 1992, reflecting deteriorating conditions.  -15- 49. Further problems arose from non-compliance with actions agreed between Bank and EAAB, aggravation of the financial situation, inability to improve operational efficiency and control of personnel costs, ad-hoc transference to the Capital District and risky supply contracts with neighboring municipalities, leading the Bank to threaten to suspend of disbursements in March 1992. Despite the significant efforts and improvements initiated by the managers of EAAB in 1992 and 1993 to solve the main problems and introduce institutional reforms, the Bank decided not to extend the current closing date as these efforts in themselves were insufficient for the fundamental institutional and structural changes required by EAAB, which needed more time to develop. 50. Acquisition and bidding supervision occupied much supervision time and the complicated processes contributed to delays in contracting works. In complex projects with many small contracts, it might be convenient to either delegate major parts of the supervision and control to the Bank's local office, or to well-known private companies which specialize in such tasks. Tenders directly supervised by Bank's staff should be limited to the most difficult areas (in terms of the amount of the purchase or bid or its special features). This should contribute to better supervision on the key parts of the project. This should be done for the next project with EAAB, SANTAFE I. 51. Lessons. An enabling institutional environment and the commitment of the leaders of a community, independent of personal and political interests, is a critical factor for the success of projects with public entities. Adverse political environment or interferences generated by political or private interests weaken the institutions. In addition, appropriately structured tariff and regulatory regime are critical to ensure that the service providers in the utilities'sectors are adequately compensated for the use of productive assets and that there are incentives and safeguards to protect the interests of consumers on the one hand, and permit justifiably return for efficient perfromance of the suppliers on the other. For approval of future loans to companies such as EAAB, adequate independence and autonomy in managing, hiring of personnel, contracting and planning should be a compulsory requirement. Unfortunately, this cannot be attained through technical assistance. A final report with monitoring indicators and detailed project implementation and investments should be agreed with the borrower, and these should be more strictly adhered to. 0. Borrower Performance and Lessons Learned 52. The performance of the borrower was satisfactory for only a part of the execution period and for some components. However, as summarized below, several weaknesses affected the project. Although tariffs grew in the last 10 years an average of 4.2 % annually in real terms, there was deterioration of the financial performance (cost increases higher than income increases) due to operational inefficiencies and to the structural deficiencies of the tariff regime. High personnel non-  -16- wage benefits (8.2% yearly in real terms), high unaccounted-for water, and poor commercial management eroded the impact on revenues. The insufficient internal cash generation affected project implementation and led to arrears in payments to contractors, suppliers and creditors. * Lax management and outside interference were mainly responsible for high personnel cost increases. * Deficiencies in the accounting system caused an adverse auditors' opinion in 1991. Only in 1992 after the Bank insisted in remedial actions by EAAB did it begin to improve its accounting system . * The technical assistance could have been successful if EAAB had been committed to its implementation and the municipal authorities did not unduly interfere in the process. a Although the General Manager is legally the head of EAAB, the company has always depended upon the support and cooperation of the Mayor of Bogota, the Municipal Council and the national Government. This condition was not always present during this project. P. Bank-Borrower Relationship 53. The relationship between the Bank and the Borrower was generally cordial most of the time. The close dialogue between the Bank, the Borrower and the Guarantor contributed to introduction of corrective actions. Q. Performance of Consultants and Contractors 54. The performance of local consultants hired to design and supervise the construction of the Wiesner-Parque Nacional tunnel and San Rafael Dam was satisfactory. 55. The performance of the consultants hired to provide assistance regarding unaccounted-for water and management information systems was adequate. There were delays in the execution of the assistance program. Problems and difficulties in the implementation of the financial information system contributed to the adverse auditors' opinion in 1991. 56. The performance of local consultants hired to carry out the detailed engineering designs of water transmission and distribution mains and secondary networks improvement and rehabilitation, as well as the sewerage Master Plan and flood control was adequate.  -17- R. Project Documentation Data 57. The information available in the Bank files, including those relating to project preparation, the audit reports, the supervision reports and the Aide-Memoire of missions were all useful. The information from the implementation period was detailed for a part of the period. Supervision missions which prepared "limited" supervision reports did not provide much of the detailed information needed to fully understand the issues and address the problems.  -18- PART HI- PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE EXECUTIVE SUMMARY i. This document reflects the EAAB perspective on the design and implementation of the Fourth Bogota Water Supply and Sewerage Project under Loan 251 2-CO, prepared according to the 1991 PCR guidelines. ii. Project Preparation. The Project Bogota IV was prepared in 1984. Later on, during the implementation phase, the Bank and the EAAB agreed to change the scope of some of the components including the planning for the Bogota River Pollution and Flood Control program, and the repair of the 78 inch Tibito transmission mainch iii. Rules, Guidelines and Standards. Although consistent procedures were applied, future projects will require that EAAB and the Bank develop a more aggressive educational strategy toward the understanding of guidelines and standards related to different areas of the project. An operation manual should be implemented at a very early stage of the project in order to allow decision making based on written instructions rather than relaying on personal knowledge. iv. Administrative Issues. Project coordination within the EAAB was rather disperse, and for future occasions it is recommended to engage a coordination unit in charge of the integral implementation of the project. v. On the other hand, despite the fact that there were more than desired rotation of general managers of the EAAB during the development of the project, a relatively constant group of EAAB staff were in contact with World Bank officials. vi. From the EAAB point of view, the existence of certain discontinuity of the Bank's personnel involved with the project, in particular some of the specialists, lead to some confusion on the perception of the Bank's opinion about different aspects, such as EAAB's financial performance or the implementation of information systems. vii. The support of the World Bank resident office in Bogota improved during the last years of the project. viii. Technical Issues. In general terms, the technical balance sheet of the project is quite positive. With strong external support of the EAAB through high qualified local and foreign consulting services and construction firms, the objectives of the Project were accomplished with high quality standards and met the mitigation requirements of urban environmental impact.  -19- ix. Financial Aspects. The existence of a Special Account proved to be a useful tool for project implementation, especially during the early stages through the availability of expedited resources. x. In the future, the existence of an operation manual for the financial management of the project will provide a more efficient performance in this field, given that all operations to be carried out between the Bank and the Borrower will be considered. xi. Reallocation of resources from one component to another was not possible despite the various attempts of the EAAB to obtain Bank approval. For the next occasion it is recommended to arrive at a more flexible approach allowing redistribution of resources. xii. In some cases an agreement between the Bank's and the Government's macroeconomic parameters was not achieved. Institutional Aspects xiii. A greater emphasis should be focused on institutional issues. xiv. Monitoring indicators should be judged taking into account structural changes in the enabling environment. xv. The unaccounted for water program was not adequately implemented. Cofinanciers Performance xvi. It took almost seven years from preparation to the signature of the loan agreement with Japan. The components involved in this credit were expected to be carried out after the termination of Loan -2512 CO. xvii. Although export credits allow prompt contracting, the Borrower must weigh against such a convenience, the higher interest rates involved and the shorter repayment periods that are required.  -20- DETAILED COMMENTS A. Project Preparation 1. The bulk of the project preparation activities took place in 1984, as the master plan studies (financed under the Third Bogota Project) which were to set the course for the new project were nearing completion. Studies also had been undertaken on the problems associated with the Tibito 2-metre pipeline with a view to corrective action. During the course of project execution, by mutual agreement between the Bank and EAAB, it was decided to shift the focus of a number of the project components as originally envisaged. This was the case for the Bogota River hydraulic works and treatment plant, which were revamped when the final terms of reference were drawn up in December 1987. When a project spans nearly 10 years, it is not at all unlikely that its structure may need to be adjusted, and that some of the changes will be substantive, as the foregoing shows. B. Ground Rules 2. The rules that govemed the Bogota program are those of the World Bank, which are supranational in nature. While these requirements match, in most instances, Colombian laws and requirements, certain of their features are unfamiliar territory in Colombian legal quarters, particularly where contracting with consultants, contractors, suppliers, and pipelayers is concerned. In the future, EAAB will need to carry out a thorough training program on all of these elements and be certain that they are known and understood, both in-house and for the benefit of the (national and local) supervisory agencies. EAAB considers the World Bank's requirements on tendering and contracting for items to be funded with its loans to be consistent, and that they help ensure that these processes are conducted transparently and objectively. Nevertheless, EAAB would welcome some measure of flexibility in this area on the Bank's part, to shorten what now are protracted tendering and contract-award processes, which EAAB has always considered a vulnerable point in the execution of its investment program. 3. In EAAB's view it would be important for the Bank to allow a unit-price analysis to be sought from firms bidding on works projects, since these bidders quote prices that are too low and more often than not trigger complaints as the contracts are carried through. One recommendation is that, in the future, there be a tailor-made operating manual for each project. Another suggestion concerns the acquisition of land for works projects. This point was discussed a number of times with Bank officials, who explained the organization's policies in that regard. However, the Bank could perhaps look at the possibility of co-financing, with IBRD ffinds, the acquisition of land for such projects, to provide clearer financing assurances for this important item.  -21- 4. The following paragraphs outline a number of administrative, technical, financial, and institutional elements having to do with implementation of the project per se, and involving both EAAB and the Bank. C. Project Implementation Administrative Considerations 5. Overall, EAAB's coordination of the project was somewhat disperse. In future projects it would be important to set up a coordinating unit to ensure that the administrative, technical, financial, and institutional elements dovetail properly. 6. While there were a number of changes at the general manager's level over the course of the project, some measure of continuity was afforded, in terms of EAAB-Bank relations, by staff contacts at the other levels who were familiar with the project and the progress thereon. 7. As for the coordination and submittal of progress reports, EAAB acknowledges that the quality of the information provided was directly related to the pooled efforts of the specialized consultants it hired specifically to draw up those periodic reports. Since no such assistance was available to EAAB during the final phase of project implementation, when the company's financial situation had deteriorated sharply, it experienced logistical problems in producing the final progress reports. In future investment projects EAAB will have to make sure that it has the financing it needs to be able to draw on such outside expertise to produce these reports throughout the life of the project. 8. EAAB feels that there was a certain lack of continuity in its contact points in the Bank, particularly in the case of some specialists, which made for different ideas as to implementation of the project and may have created some confusion in the way it was handled; two areas in which this may have been the case are EAAB's financial performance and the setting up of information systems. These points are reflected in the Aides-memoire prepared by those visiting missions. 9. The Bank's office in Bogota took on a very active role in the latter years of the project. Technical Considerations 10. In EAAB's estimation, the consultants engaged to produce studies and designs, provide advisory and supervision support, and coordinate construction schedules made a valuable contribution. With help from local and foreign consultants, EAAB was able to employ new technologies for the design and building of express lines and control structures, tunnel liner and other construction techniques, and so on. For the first time, the company set in place a program to control unaccounted-for water, devising methods, subprograms, and components to that end.  -22- 11. Technical specifications for the supply and installation of project items were updated, notably on the quality-assurance front, working with international standards for their supply, assembly or installation, and testing. Quantity-surveying and payment aspects were improved, as were the forms for quantities of work for the system of mains (tanks, pumping stations, piping networks). 12. One feature of the technical specifications that was successfuily applied in all the construction projects was the urban-impact mitigation requirement. EAAB is a pioneer in this area in Bogota. 13. As the works projects proceeded, EAAB produced as-built record drawings, which were one element of the technical information needed for a reliable cadastre. 14. To strengthen the technology-transfer component and make for continuity of the program to develop the system of mains, EAAB brought on board as staff, consulting professionals who had provided advisory support for the Fourth Bogota Program. 15. While this program helped EAAB make major strides from a technical standpoint, the company is of the view that some areas could be substantially improved, one of them being an opportunity for the different EAAB areas to be involved in every phase of the project and not confined to the portions for which they have direct responsibility. 16. Technology transfer could be enhanced in future programs if there is monitoring and periodic evaluation of studies, designs, tendering processes, supervision activities, and construction and installation of the works. 17. The two aforementioned suggestions would make for fuill transfer of technology and would also leave a complete record of technical information pertaining to each stage of the project. Financial Aspects 18. EAAB feels that the system of advances is effective, because it facilitates disbursements early on in the project. Likewise, the Bank's replenishment and reimbursement arrangements through use of the Special Account, by and large make it possible for funds to be paid out smoothly and for proper control of monies. There are some areas, however, in which we believe it would be important to improve the financial management of loans in future operations. 19. The administration of the loan by EAAB entailed the use of the reimbursement and replenishment arrangements, rendering of accounts, and foreign remittances. To this end the company instituted a series of procedures, which worked in the early stages of the project but ultimately were relaxed, since there were no procedures manuals and the officials in charge changed. This led to delays in accounting for funds to the Bank.  -23- 20. Meanwhile, the controls that had been set in place in these areas also weakened, as there was no clear tie-in between the system of controls for the loan and the budget as a basic financial-control tool in companies of this nature. In the future, EAAB will develop a budget structure model to reflect the various components of proposed investment programs, to make for better management and control. 21. Because the company operates on a single-fund principle, at certain points the advance-management equation was not satisfied, since there were insufficient paid invoices to provide the Bank with the required reimbursement evidence. On this point, EAAB is of the view that a separate management system for investment funds would be more effective. 22. A further important consideration along these lines is that use of the reimbursement exchange rate for replenishment purposes triggers a significant gap, in our view, between the amounts actually paid out by the company and the replenishment amount received from the Bank, leaving the company to finance a higher percentage than originally covenanted. This is particularly the case when there is a sharp devaluation, and we believe that it warrants special coordination efforts on the part of EAAB and the Bank. 23. EAAB also feels that there should be more flexibility for reallocating unused funds from one category or component to another. It was our experience with this Fourth Bogota Program that there were certainties, in the last years of the project and given the implementation projections, that an increase in the Bank-financed percentage for the civil works of the San Rafael reservoir was feasible; this situation was put before the Bank on a number of occasions, but failed to elicit a positive response. This would have made for greater utilization of Loan 2512-CO. 24. We further believe that arrangements for monitoring disbursement of the loan by category should be revamped, since it was found in this program that the totals matched but the line items were never reconciled, so the balances were different. 25. One tool that would improve financial management of loans would be Bank guidelines for financial monitoring and control of projects such as exist in other areas (tendering, consulting contracts). It would also be helpful if the Bank could provide borrowers with more in-depth advisory support on these topics. 26. With regard to the Bank's monitoring of EAAB performance using macroeconomic models, it would be very important to devise a uniform methodology to that end, establishing in advance a financial model for that process, which should be acceptable to both parties. Likewise, there needs to be better coordination between the Colombian Government, the Bank, and EAAB to decide upon the macroeconomic parameters that are to be used.  -24- Institutional Questions 27. Equal stress was laid in al the project components on coordination by the Bank. However, one critical and complex area, the institution-building component, which is by definition often intangible, and encompasses areas in which EAAB has no in-house tradition or technical culture (information systems, to cite one example), would require closer technical monitoring by the Bank, and stronger advisory support so that problems can be picked up on quickly and remedial measures planned in good time. Our suggestion would be that an official with expertise in institution-building be assigned to future projects. 28. EAAB also feels that the assessment of performance, measured by specified indicators, should be a dynaniic process that allows for adjustments in such indicators in light of the performnance being recorded and changes in variables in the surrounding environment. 29. The unaccounted-for water program set up in the course of the project suffered from lack of continuity, since it was not afforded the necessary management-level attributes and its strategic role as an indicator of EAAB efficiency thus was not given due regard. Experience With Other Co-Financing Sources 30. Japanese Funding: From 1984 to 1991, in response to the World Bank's requirement that it secure co-financing for the Fourth Bogota Water Supply and Sewerage Project, EAAB negotiated a loan from the Japanese Government through the Overseas Economic Cooperation Fund (OECF). 31. The focus of the early stages in the negotiations was to have the project declared a priority for presentation by the DNP to the Japanese Government (priority was being given in 1984 to the Aguablanca project in Cali). 32. In 1986 the OECF officially confirmed the Japanese Government's intention to process a loan for up to 13,132 million yen; however, the loan ultimately approved was for 8,375 million yen or the dollar equivalent thereof 33. After all the government authorizations needed for the loan were secured (a process which took from 1987 to 1991), the Loan Agreement finally was signed in December 1991. 34. The components funded with the Japanese loan are: a) San Rafael reservoir - pumping station b) EAAB information system - control center c) Operating and maintenance equipment d) Consulting services  -25- 35. The San Rafael reservoir components are under way at this writing, and work is to begin shortly on the others. 36. Suppliers' Credits: In the EAAB's estirnation, the supplier credits, to a total of US$28.4 million, secured for the Fourth Bogota Program worked out well. While this form of financing is very easy to arrange, it is expensive, and repayment terms are short for a venture like this water supply and sewerage project that has taken about nine years to complete. 37. The supplier credit raised for this program was used to purchase the foreign component of the piping for distribution mains and pumping stations.  - 26 - PART III - STATISTICAL INFORMATION 1. RELATED BANK LOANS YEAR OF PROJECT NAME PURPOSE APPROVAL STATUS CO MMENTARY 536-CO Expansion of Tibito 1968 Completed Project was successfullv water supply and in 1976 completed transmission system 741-CO Construction of Chingaza 1971 Completed Problems with contractor diversion, Wiesner w%ater in 1983 of the diversion tunnel and tratment plant, Santa Ana concentration of methane storage tank 20 Km of gas, delayed the project transmission main and and increased the cost 100 Km of primary distri- from and USS85 million bution to US$300 million. Construction of the 20 Km transmssion main and 50 Km of primary distribution I_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ was executed 1967-CO Primary water distribution 1979 Completed Water storage in mamns; secundary water, in 1985 southwest area of Bogota sewerage and drainage showed the need for a new network, drainage canals Master Plan. EAAB and the and sewerage interceptors Bank agreed to modify the project to excecute the new master Plan. 25 Km of primary mains were deleted from the project and construction of secondary water and sewerage net- works was excecuted instead.  - 27 - 2 - PROJECT TIMETABLE DATE DATE DATE ACTUAL PLANNED REVISED Identification N.A. 05/31/83 Preparation Mission 1),83 - 03/18 /84 Appraisal Mission f 84 - 06/27/84 Loan Negotiations 1 85 - 02/15/85 Board Approval ,85 - 04/2/85 Loan Effectiveness 07/1/85 Project Completion 12!92 _ _30/04/96 (1) Loan Closing 6/30/93 - 06/30/93 (1) The San Rafael dam was completed in April 1 994, and the pumping station and complementarV works will be completed in April 1996 3 - LOAN DISBURSEMENT FY 86 87 88 89 90 91 92 93 94 Appraisal 22.5 42 6 65.2 87.9 107.9 122.4 127 128.3 129 Actual 8.1 12.5 24.4 47.3 77.8 8S. 96.9 104.3 105 Actual as % 36 3 37.4 53. 721 69. 75 81.3 80.8 of Estimates _ __ _ _ - _ - _ -  - 28 - 4-PROJECT INIPLEMENTATION CATEGORY UN'IT APPRAIUSAL AC`TUAL, A- WAAER TRANSSUSSION AND D[STRfBLTION L\EPROlEM[E.Y-TS A-I SA.-TA ANA - RIATE 'kR ,. C NAL nNNTEL ;m) S I I1 A-: 7RX\S\ISSIoN PRaLAIRt A' TER \LkD2S Km) 43 68 5 A-3 PR(''FSTER PT tPDti ST TIC\N PLM\P STATION 6 S A-4 STC RAOE TANKS TAN5 9 EMERGEN-CY 'V RKS * Rarong i Lhe heient - -hisaca damrn ncrase n t .am3 20'0 .000 * Rehabditation o( Lana -awaterLreaunent plant B- DlSTRIBUTnONSSYSTENIREHABILITATION B- I REPLA-E\MENT REPAJR WATER DISTRIBITl '. '.' ;' -i8 2S0 165 B-' REPAIR WATER NtALN BREAKS I;M) -S B-3 REP IR '8 NCHT!BrT,-f TR-ANSMISSION Krn i 2' C- SECOYD.RY WATER. SEERAGE- AND DRAVN %(;E NRET\ ORK A.ND SERVICE CON NECTION 'I N l 'STR t(TCN SECUND AR Y U DISTRIB I T ' '-L(NS Kmi 140 160 Cz NSTRL7TIC'N SETUNDAR1 SEWAGE > ' LLE - RS Kitm 2'0 336 ,'NSTRLtCTIN SEC.NTDxRA ST('R.