India - Gujarat Urban Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16042 IMPLEMENTATION COMPLETION REPORT INDIA GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT 1643-IN) September 30, 1996 Infrastructure and Energy Operations Division Country Department II South Asia Region This document has restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Units = Rupee (Rs) Fiscal Year Averages: US$ 1.00 (FY85) = 11.6 Rs = 0.98 SDR US$ 1.00 (FY86) = 12.4 Rs = 0.95 SDR US$ 1.00 (FY88) 13.2 Rs = 0.76 SDR US$ 1.00 (FY90) = 16.5 Rs = 0.75 SDR US$ 1.00 (FY92) = 23.5 Rs = 0.72 SDR US$ 1.00 (FY94) = 31.1 Rs = 0.72 SDR MEASURES The metric system is used throughout this report ABBREVIATIONS AUDA - Ahmedabad Urban Development Authority AMC - Ahmedabad Municipal Corporation GHB - Gujarat Housing Board GMFB - Gujarat Municipal Finance Board GOG - Government of Gujarat State GWSSB - Gujarat Water Supply and Sanitation Board TA - Technical Assistance TPVD - Town Planning and Valuation Department UPC - Urban Project Cell FISCAL YEAR April 1 - March 31 FOR OFFICIAL USE ONLY INDIA GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT NO. 1643-IN) IMPLEMENTATION COMPLETION REPORT Table of Contents PREFACE EVALUATION SUMMARY ...................i..........................i PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Statement and Evaluation of Project Objectives .........................1 B. Evaluation of Objectives....................... .................3 C. Achievement of Objectives....................... ................3 D. Major Factors Affecting the Project.................. ...............5 E. Project Sustainability ..........................................6 F. Bank Performance.............................................7 G. Borrower's Performance....................... .................8 H. Assessment of Outcome.........................................8 I. Future Operations..............................................9 J. Key Lessons Learned...........................................10 PART II: STATISTICAL TABLES Table 1: Summary of Assessments...................................12 Table 2: Related Bank Credits......................................14 Table 3: Project Timetable........................................15 Table 4: Credit Disbursements - Cumulative............................15 Table 5: Key Indicators for Project Implementation.......................15 Table 6: Key Indicators for Project Operations .......................................... 15 Table 7: Studies Included in the Project...............................16 Table 8A: Project Costs............................................17 Table SB: Project Financing.........................................18 Table 9: Economic Costs and Benefits........................... .... 18 Table 10: Status of Legal Covenants ............................. ....19 Table 11: Compliance with Operational Manual Statements ........... ...... 23 Table 12: Bank Resources - Staff Inputs.... ........................ .......23 Table 13: Bank Resources - Missions ..... ............................24 Tis document has a restricted distribution and may be used by recipients only in the performance of their ofhicial dumes. Its contents may not othereise be disclosed without World Bank authorization. ANNEXES Annex 1: Composition and Approximate Cost Breakdown ....................................26 Annex 2: Base Costs and Physical Contingencies....................................................28 Annex 3: The Project, Its Restructuring and Benefits Achieved.............................30 Annex 4: Operating Plans - Project Implementing Agencies..................................33 Annex 5: Borrower's Comments on the ICR ...........................................................37 Annex 6: Final Supervision Mission's Aide Memoire.............................................39 INDIA GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT 1643-IN) Preface This is the Implementation Completion Report (ICR) for the Gujarat Urban Development Project in India (the Project) which IDA supported with Credit 1643-IN of SDR 58.5 million (1985 US$ 62.0 million), approved on 12/17/85, and made effective on 11/11/86. Following five extensions of the disbursement period, the credit was closed on 03/31/95 compared to the original closing date of 12/31/92. After cancellation of SDR 11 million (1985 US$ 11.7 million) in connection with both a 1989 restructuring of the Project, and the experienced changes in exchange rates, a further SDR 0.76 million (1985 US$ 0.84 million) was canceled at credit closing. There was no external co-financing of the Project. The ICR was prepared by Messrs. B.S. Bhavanishankar (Consultant), E. A. Huning (Task Manager), and R.A. Ribi (Consultant) on behalf of the Energy and Infrastructure Operations Division, Country Department II, South Asia Region, with the particular assistance of W. S. Humphrey (Consultant/former Project Adviser, SA2DR), C. Godavitarne (Consultant/former Senior Operations Officer, India Resident Mission), S. Sarkar (Sanitary Engineer, India Resident Mission), W. J. Roach (former Task Manager, now retired) and T. Kanaley (former Task Manager, now Director General, AusAID, Australia). It was reviewed by Mr. Jean-Frangois Bauer, Chief, SA2EI, and Mrs. Kazuko Uchimura, Project Advisor, SA2DR. The ICR is based on material in the Project file, interviews with and contributions from IDA personnel involved in project implementation, and the results of discussions with the Borrower and Beneficiary agencies during IDA's 03/95 Final Supervision Mission. The results of this mission are summarized in the aide-memoire of March 1995, attached to the present report. The local authorities contributed to the ICR by supplying the 10/95 completion report prepared by the Urban Project Cell and by commenting on the draft ICR. The comments are appended verbatim to the present report whereas the contributions, which have been taken into account in the report, are available in IDA's regional files.  INDIA GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT 1643-IN) IMPLEMENTATION COMPLETION REPORT Evaluation Summary The Project and its Objectives 1. The Gujarat Urban Development Project (the Project) aimed at helping reduce the deficits in urban shelter, infrastructure, and services in the main centers of the state. To this effect it included the following items addressing a complex set of sub-objectives: (i) development of 100 ha in six cities, (ii) town planning schemes covering 570 ha in three cities including land re- adjustment and basic infrastructure, (iii) upgrading of 250 ha of slums in five cities, (iv) improvement of solid waste disposal services in five cities, (v) other urban infrastructure (water supply, sewerage, storm drainage, etc. in four areas, and (vi) institutional strengthening at local and state level through technical assistance. See paras. 3 and 4. 2. From the start, progress on the Project was disappointing, and already in 1987, the first year after IDA had made the credit effective, it became increasingly clear that the chances were slim that the Project's objectives, as originally set, could be achieved. The drought that afflicted the state in the mid-1980s disrupted the local economy and induced a re-channeling of the Borrower's resources state-wide to high priority endeavors, especially those related to relief from the consequences of the drought. Therefore, it undoubtedly was the main factor for the Project's poor prospects at the time. However, other factors that hampered Project progress were the complexity of the operation involving a large number of sub-projects and executing agencies, as well as the deficient ownership of the Project shown until the later stages by GOG and the implementing agencies. These shortcomings were also in part related to IDA's wish to quickly generate a major impact on the sector, without adequate preparations. See paras. 3 and 4. 3. In 1989, the Government of Gujarat (GOG) and IDA agreed on a restructuring of the Project to: (i) concentrate the Project on particularly urgent urban items with a good chance of success; and (ii) use the IDA resources that became available in connection with the preceding curtailment for improving water supply and sanitation in rural areas particularly affected by the drought. The latter, new, component represented about 40% of the revised Project and complemented similar items of the preceding Gujarat Water Supply and Sewerage Project, which GOG and IDA agreed to restructure in parallel with the operation discussed here. See paras. 5 and 6, and Annex 3. - 11 - Project Outcome 4. The physical objectives of the urban component of the revised Project were achieved in part. Some of the municipalities, especially Surat, Vadodara, and Jamnagar, were reasonably successful, though in the case of Ahmedabad, substantial progress was only achieved at the very end of the Project. The Gujarat Water Supply and Sanitation Board (GWSSB), the entity responsible for the rural water supply and sanitation component of the re-structured Project, was more successful, though it also fell short of some of the revised Project's implied sub-objectives. Indeed, some of the sanitation objectives were exceeded. See para. 9. 5. The sustainable institutional strengthening that resulted from the Project was modest, at best. In particular, the improvements in cost recovery from urban services, both at the level of the tax and tariff assessment and of the collection of dues, were limited during the Project until the closing stages. This was also largely the case in the GWSSB component. Nevertheless, the Project and the influence of its covenanted requirements on implementing agencies' financial performance and capacities are likely to have contributed to the gradual improvements and policy shifts that finally emerged. This change is also based in part on the creation by the Borrower, in the late 1980s and early 1990s, of municipal service corporations which are, at least in principle, less prone to direct political influences on day-to-day municipal management than branches of government directly beholden to a political executive. See paras. 10 and 11. 6. Despite the relative success of the rural component, the overall outcome of the restructured Project rates as "unsatisfactory" (para. 18). A similar assessment seems indicated for both the Borrower's and IDA's performance, although IDA quickly acknowledged the deficiencies of the original Project and tried with various degrees of success to correct them. Accordingly, in contrast to the original operation, which was grossly over-optimistic in its assessment of the Borrower's and the other local entities' institutional capability, the revised Project was more realistic but still fell substantially short of adequately assessing what was achievable, both in physical and institutional terms, in the Gujarat environment. Further, the scarcity of available information makes it difficult to evaluate reliably whether the results achieved stand in reasonable relation to the human and financial resources that were invested in the Project. In particular, it is impossible to determine ex-post economic returns for the Project or its main items. See paras. 18 to 25. Sustainability of Benefits 7. The sustainability of the limited benefits from the Project is uncertain, as it largely depends on the continuation of the institutional improvements that started to materialize at the very end of Project implementation. In particular, it is not enough that taxes and utility tariffs continue to improve but the collection of the dues must also turn substantially more efficient than it was at the time IDA closed the operation. See paras. 16,17 and GOG comments in Annex 5. - 1ll - Findings and Lessons 8. The Project lacked realism, partly due to hasty preparation which was apparently related to IDA's concern to have a large impact on the sector quickly. This fact is somewhat obscured by the occurrence and consequences of the major drought, mostly identified as the main factor that negatively affected Project implementation and forced IDA to restructure the operation. However, even without this uncontrollable factor, the operation had little prospect for success. A basic principle which should have been applied more firmly is that, at any point in time, the Project's implementing agencies must have the capability (if necessary, through Technical Assistance and/or other measures) to carry out the Project measures foreseen for that time. The ability to implement the initial measures should have been in place already at the Project's start. 9. The Project should have had less components and objectives to account for the weakness of the implementing agencies which were already evident at Project preparation. A concentration on advancing reforms and institutional strengthening in "core" public urban activities such as water supply, waste management and other crucial environmental aspects, could have fulfilled this condition, provided such measures were clearly identified as feasible in the project environment prevailing at the time. Even so, the earliest possible setting up of a strong Project coordinating body, like the Urban Project Cell as it worked in the later years, would have substantially improved the prospects. Such a body should be tasked inter alia with unifying the approach to design, procurement and execution of similar Project components in different places by different executing agencies. However, the part of such an organization should be designed to progressively transcend the initial role in the project, to extend its expertise and growing capacities throughout the Project's institutional context. Otherwise, the institutional impacts of the coordinating body tend to disappear on project completion, reducing the sustainability of the operation's benefits. 10. The implementation prospects for complex projects involving urban services and investments would also be strengthened if, at project launch, a strong intermediary capacity is established. The role and authority of such an entity should considerably exceed those of UPC as they should include wide responsibility for (i) project implementation performance, (ii) developmental support to implementing agencies, and (iii) a clear focus on financial objectives and management in the participating entities. 11. In complex projects, even if much less complicated than this Project, monitoring physical progress and procurement should be more streamlined from the outset to ensure that the Bank Group staff responsible for project supervision are better able to focus on the main issues, which should only occasionally be in procurement. The monitoring framework should be aimed at ensuring that supervision missions avoid spending excessive time checking on procurement status and physical progress in many sub-projects, at cost to more strategic issues. 12. A project restructuring should address the core weaknesses that prompted the project modification. In this case, the restructuring of the Project made it, if anything, more complex, as more items were added than deleted, though the goals of the new components were prima facie easier to achieve than those for the deleted items. Furthermore, the addition of a rural water supply - iv - and sanitation component introduced an essentially new type of specialty into the Project mix, increasing the difficulties for IDA's supervision. 13. There is a need to take fuller account of the lessons learned from past urban projects during preparation of future projects, particularly with regard to size and the impact of complexity on project outcomes. Clearly, a tradeoff must be made between the desire for quick, large scale projects with perceived major sectoral impacts, and smaller, more manageable, and ultimately more sustainable projects that are more in line with the existing reality of weak institutions and, in the case of municipalities, the slow pace of financial devolution. 14. IDA's budgeting for supervision should take more account of the complexity of a project and the capabilities of the Borrower and Beneficiary agencies. The corollary is that IDA should avoid committing itself to very complex projects which, in view of the institution's budgetary situation (already tightening in the 1980s), are likely to be too costly to effectively supervise. INDIA GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT 1643-IN) IMPLEMENTATION COMPLETION REPORT PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Evaluation of Project Objectives Project Context 1. The Bank Group's lending for urban development in India started with the large water supply and sewerage operation in Bombay (Credit 0390 of 1973) and the Calcutta Urban Development Project (Credit 0427 also of 1973) which had an important water supply and sewerage component. These were followed, between 1975 and 1981, by three further projects covering mainly urban water supply and sanitation in Uttar Pradesh, Bombay, and Maharashtra, as well as by three urban development operations addressing a wider range of issues (including area development, slum upgrading, and improvement of municipal services) in Kanpur in Uttar Pradesh, Madras (2 projects), and Calcutta (2 projects).. 2. Starting in the first half of the 1980s, IDA encouraged the preparation by state governments and appropriate consultants of Urban Sector Memoranda for the respective states; the second of this series was that for Gujarat State, which was completed in 1983 and which served as a basis for the project discussed here (the Project). In 12/85, two years after its formal identification by IDA, the institution's Board of Directors approved the operation. The parties signed the corresponding agreements four months later. In 1987 and 1988, IDA approved two further projects with similar objectives for the Uttar Pradesh and Tamil Nadu states, respectively. To the present, these were to remain the last specific urban development projects in India. Project Objectives and Content 3. The Project's broad objectives were to reduce the deficits in urban shelter, infrastructure, and services in the main centers of the state. To assure progress in this direction in the longer run, the Project was to strengthen planning, administration, and financial management in local government and state agencies in the urban sector. Through this operation and the similar ones in Uttar Pradesh and Tamil Nadu, IDA further aimed at helping catalyze policy reform in India's urban sector. The general objectives were well in line with IDA's broad policies both in the urban sector and in India. They also were in agreement with the state governments' objectives for the urban sector set forth in the Sector Memorandum mentioned earlier, and compatible with Central Government's goals. However, IDA's wish to produce quickly a large impact on the sector, paired -2- with the Borrower's and the sector's urgent needs for funds and other support, contributed to the elaboration of a project that was unrealistically ambitious. 4. The main Project components addressing a complex set of sub-objectives were: (i) development of about 100 ha in six cities with 65% of the resulting plots affordable to low income groups, all the plots to be allocated on the basis of criteria agreeable to IDA, at market prices for higher income beneficiaries, lower income families being able to avail themselves of low cost shelter loans; (ii) town planning schemes covering some 570 ha in three cities and including land re-adjustment as well as basic infrastructure; (iii) upgrading of some 250 ha of slums in five cities with appropriate cost recovery schemes; (iv) improvement in collection, storage, transportation and disposal of solid waste as well as in maintenance of the corresponding facilities and equipment, also in five cities; (v) other priority investments in urban infrastructure and services such as water supply, storm sewerage, waste water collection and treatment, in four areas; and (vi) institutional strengthening at local and state level through technical assistance (TA) to the Gujarat Housing Board (GHB) of the Government of Gujarat, (GOG), the Gujarat Municipal Finance Board (GMFB) also of GOG, the Town Planning and Valuation Department (TPVD) of GOG, the Ahmedabad Municipal Corporation (AMC), the Ahmedabad Urban Development Authority (AUDA), and other municipal entities. Project Restructuring 5. In 1987, the first year after Credit 1643-IN had become effective, progress was disappointing, the main reason given being the drought conditions prevailing at the time in the state, weakening several of the main agencies involved in Project implementation (especially AMC), and making them unable to carry out the agreed programs, both in the context of the Project and the closely related Gujarat Water Supply and Sewerage Project supported by Credit 1280-IN approved in 1982. Therefore, towards the end of 1987, IDA started the planning of a re-structuring of both projects. For the Project, IDA's Board of Directors agreed to the new scope and conditions in 08/89. The adjustments to the Project took into account that: (i) the disruption in the state's economy, which the drought had caused, had made it highly unlikely that Borrower and Beneficiaries would be able to implement successfully several of the Project components (indeed, several beneficiaries declared themselves unable to do so); (ii) the emergency justified a further support to GOG rather than the cancellation of the credit; (iii) the scarcity of the drinking water in many regions, especially drought-prone rural areas placed the population in such areas at risk and made the pursuit of a regular economic activity exceedingly difficult; and (iv) the Gujarat Water Supply Project already included a rural water supply component whose impact could be strengthened through the inclusion in the Project of further rural schemes. Thus, the restructured Project came to include a reduced urban component and a new rural water supply part. The broad objectives for the urban items were essentially the same as those of the original operation. Those for the water supply and sanitation component were the alleviation of the critical health situation in drought affected rural areas. 6. The restructuring (i) substantially reduced the area development component, (ii) cut the town planning schemes to about one third of their original scope, (iii) halved the slum upgrading and solid waste management programs, (iv) reduced urban infrastructure components by about -3- 20%, and (v) left essentially intact the originally planned investments in institutional strengthening. However, the previous poor progress of the Project had demonstrated the need for extensive institutional strengthening beyond that foreseen in the original Project. Therefore, the revision added some US$ 2 million to the latter, leaving the specification of the items to be covered for the implementation phase. This drastic curtailing of the urban component allowed the integration into the Project of rural water supply and sanitation schemes that came to represent some 40% of the revised Project. B. Evaluation of Objectives 7. Both the Project's broad objectives and the more specific sub-objectives were relevant and appropriate for Gujarat, one of the most industrialized states of India, that faced pressing needs brought out in the previously mentioned sector memorandum. However, the detailed goals to be achieved through the various Project components did not adequately take into account the chronic financial and institutional weakness of the mostly municipal institutions that were to implement these components, nor the absence of any GOG capability to compensate for this weakness. Thus, the operation was unrealistically ambitious and poorly designed. IDA's Staff Appraisal Report (SAR) acknowledges such institutional weaknesses and foresees an array of measures to overcome them. However, it assumes that, even before the shortcomings could be eliminated, the sector would be able to carry out a program far more substantial (even in physical terms) than what it had implemented in the years preceding the Project. For example, the SAR assumes that Ahmedabad Municipal Corporation (AMC) was about to double its annual investment (in current terms) in the first two years of Project implementation and to quadruple it until the assumed closing date of the IDA credit. Further, IDA might have foreseen that it would have difficulties properly supporting the sector through Project supervision, as the set of sub-objectives called for the involvement of about twelve different agencies, implementing a great number of sub-projects in various fields. 8. At restructuring, the elimination of a series of non-performing Project items and of several executing agencies made the remaining urban sub-objectives more achievable. However, at the same time, the modification introduced into the Project numerous new sub-projects aiming at rural water supply and sanitation, an area essentially extraneous to the original Project. It also brought into the Project a new executing agency, the Gujarat Water Supply and Sanitation Board (GWSSB). The latter also needed strengthening, a drawback that was somewhat compensated by the fact that the entity had already substantial experience with a Bank Group project (the Gujarat Water Supply Project). Nevertheless, the number of sub-projects increased rather than decreased, as would have been desirable, and the time schedule remained unrealistically tight for the urban components taken over from the original Project. For the new rural component the timetable also was overly ambitious. C. Achievement of Objectives 9. It is evident that, in 1985-89, the Project was advancing in a way that it would have fallen far short of most of the sub-objectives spelled out in the SAR or implied by the choice of -4- components. In the fields of area development, town planning, and slum upgrading, progress was especially disappointing in Ahmedabad, the state's main urban center. Therefore, Project restructuring drastically curtailed these urban components. But implementation continued at a slow pace and with poor results. Nevertheless, some of the institutions in Surat, Vadodara, and Jamnagar, proved able to implement substantial parts of the envisaged programs in the areas of solid waste management and low cost sanitation, where ultimately, after long delays, even AMC achieved a modest measure of success. The GWSSB component was, by the Credit's closing date, implemented in a reasonably satisfactory way and some of the sanitation targets were even exceeded. However, delays with respect to the 1989 time schedule were still substantial and impeded the completion of several sub-projects by late 1995. See also Annexes 2 and 3. 10. The institutional strengthening that resulted from the Project was modest, at best. This applies especially in relation to the objective of full cost recovery in municipal services, which was an ultimate objective in most areas touched by the Project (SAR, paras. 4.01 to 4.07). However, success in this area implied the introduction of sweeping reforms in tax and tariff assessment as well as in the collection of the corresponding dues, objectives that, during the Project, the executing agencies achieved only to a very limited degree. Recently, some movement towards the above goals seems to have set in, especially in AMC, where the prospects for improved financial performance substantially improved. This progress was doubtlessly tied to IDA's efforts, especially its relentless insistence during the post-restructuring stages of the Project on improved financial performance by the beneficiaries and on their meeting the covenants agreed with IDA. However, only a substantial change of focus and approach on the Borrower's side finally made the turnabout possible, and this was long after the Project had de facto been completed. The extent to which this change is directly attributable to IDA activities can only be a matter of speculation. Nevertheless, in the strict context of the Project, TPVD benefited through its increased capacity to help develop urban planning in the individual centers increased, and GMFB was able to support several cities in improving their financial management, inter alia through helping introduce accrual accounting. These are positive results, although they fall short of the corresponding Project sub- objectives. 11. The Project did not address GWSSB's institutional weaknesses until the last two years of Project implementation, when it helped finance a study of the institutional strengthening of the Board, which should strengthen the planning for and future development of the institution. During the Project, though not directly related to it, some promising changes occurred in the sector, which ultimately may also benefit GWSSB. Progressively, in Gujarat, in towns and cities of varying size, branches of municipal government responsible for urban services were transformed (partly after aggregation) into municipal corporations. While no panacea, this may have helped lessen the direct political influence on day-to-day management of such services, often pervasive before this. -5- D. Major Factors Affecting the Project Factors Generally not Subject to Government Control 12. The main such factor was the series of droughts in Gujarat in the mid-1980s that severely strained the financial and managerial resources of most implementing agencies, especially AMC. It resulted in major drains on and reallocation of GOG resources otherwise needed for Project activities. In particular, funds originally earmarked as couterpart contributions to the Project were diverted to drought relief and could not be replaced, the more so as most municipalities, even under normal circumstances, were then chronically failing to raise appropriate revenues and to collect taxes, though the level of these had not been raised in a long time. Several major instances of civil unrest in Gujarat also negatively affected Project outcomes. Another factor which, as in many other projects, added a measure of difficulty to Project co-ordination, was India's federal setup and its various effects on planning, project decision-making and accountability by and within any individual state such as Gujarat. Last but not least, ownership by GOG and the implementing agencies of various Project components, especially those aiming at institutional improvement, was weak, especially during and after the droughts. GOG and the other implementing agencies concentrated their limited resources during these periods of emergency on ventures considered more urgent than the Project, with significant after-effects of overall progress. Factors Generally Subject to Government Control 13. To improve the Project's chances of success, the responsible authorities should -- much earlier than was actually done -- have enacted legislation to empower the local bodies to enhance tax structure and levels to meet at least the O&M expenses of the urban sector. They similarly should have de-linked at the earliest stage possible fees for services such as water supply and sewerage from property tax and rationally fixed the latter on the basis of market rents rather than on outdated standard rents. An early and more generalized introduction of accrual accounting would also have been possible and helpful. In more recent years, the creation of municipal corporations to run urban services, though probably only loosely connected with any impetus provided by the Project, helped improve the prospects for these services and thus for the urban Project components. 14. The SAR sets forth the creation of an Urban Project Cell to co-ordinate Project implementation as desirable. However, GOG set up such a body only after Project restructuring, as a result of substantial prodding by IDA,and even then, GOG support for the new body was initially weak. It was the appointment, in 1991, of a senior person to head the UPC that finally got the Project moving and led inter alia to: (i) much improved project monitoring and reporting; (ii) generally satisfactory procurement measures and actions; and (iii) better coordination of and support to the various Project agencies. Such strong guidance earlier in the Project would have been particularly valuable, as it would have facilitated e.g., the adoption of unified design and execution criteria, as well as standard procurement procedures which were in agreement with IDA's Guidelines. However, it is worth noting that the very success of the UPC subtly shifted responsibility (or at least the perception of such responsibility) away from the implementing agencies, which may have weakened the Project's effect on the institutions. -6- Factors Generally Subject to Implementing Agency Control 15. The institutional weakness of most implementing agencies led to delays in design, procurement, and implementation. The outcome was further negatively affected by frequent changes by these agencies of composition and specifications of Project components. The implementing bodies themselves should have pressed for a stronger co-ordination of their respective Project activities. Improved tax collection by the participating agencies (even within the deficient prevailing framework) could have substantially improved Project success. Staff training in general and, in particular, guidance towards a clear understanding of the Project and of the various agencies' responsibilities in its context, were often keenly missed during Project implementation. E. Project Sustainability 16. The Project brought improved solid waste management in various cities. In Ahmedabad, AMC brought about belatedly yet finally, in a short time, notable improvements such as single handling of the city waste and disposal by more efficient means (albeit mainly after Project closure). The municipal bodies have in general increased the capacity of their mechanical workshops to maintain the additional fleet provided under the Project. Thanks in part to the training provided to municipal staff through GMFB and also the delegation of power from GOG, tax and charges collection has improved. There still needs to be further progress, in particular adjustments to the level of these taxes and charges to assure the longer term sustainability of the benefits from the corresponding Project components. AMC's raising of the water supply and sewerage rates by almost 300% over 2 years for major user groups is, however, highly encouraging. It should lead to substantial improvements, provided collection of dues improves in a reasonably commensurate and sustained way. 17. GWSSB not only implemented the five water supply and sanitation schemes introduced into the Project in 1989, it essentially also operated and maintained them once they are commissioned. In view of its substantial experience, it has the technical know-how to do this successfully. However, the financial prospects are less encouraging. GWSSB expects to meet the O&M expenses by water charges collected from the users. At the end of the Project, these revenues did not meet expenses and GOG was unable to fill entirely the gap. GWSSB plans to gradually increase the charges, but actual adjustments, until Project completion, remained limited. It also envisages handing over the completed village schemes to the corresponding panchayats for operation and maintenance. The panchayats, under the guidance of GWSSB, would then be responsible for collecting the charges from the consumers. GWSSB itself would keep the responsibility for maintaining the production of the water and for its delivery to the local systems. 18. However, all these arrangements and especially the setting of new levels of the charges, both on the part of GWSSB and of the panchayats, are not yet implemented, hence the sustainability of the benefits to be reaped from this Project component is still uncertain. The sustainability of the benefits from the low cost sanitation component, by contrast, seems likely as -7- the rural families own and operate these facilities to which they have contributed their share of the capital costs and are therefore likely to adequately maintain these conveniences, (although GWSSB occasionally may have to provide some guidance with respect to the cleaning of the twin pit latrines). Similar conclusions apply to the water supply and sanitation components executed in Ahmedabad, Surat, Vadodara, and Anand. 19. Overall however, the wider sustainability of the Project's intended benefits must presently be deemed uncertain (see COG comments in Annex 5). F. Bank Performance 20. In the first half of the 1980s, IDA appropriately identified an urban project as one of the highest priorities for Gujarat state. During project preparation, it was imaginative and constructive in assisting GOG and the municipalities develop a project that, at the time, must have seemed promising. However, it appears to have grossly overestimated the technical and implementation capability of the various institutions that were to carry out the components of the Project. While GOG and the senior representatives of the main entities to be involved in the Project manifested their agreement with the broad objectives, the Bank appears to have downplayed the lack of ownership of the detailed sub-objectives by the bodies concerned. Therefore, while the resulting Project addressed pressing issues and was in agreement with IDA's policies for the country, the state, and the sector, the Project ultimately suffered from a substantial lack of realism that exacerbated the effects of the partly interconnected natural and political difficulties that the Project faced nearly from the beginning. 21. In 1987, IDA correctly saw that the prospects for the Project were poor and started considering the restructuring of the operation, together with that of the Gujarat Water Supply and Sewerage Project. The overhaul took some 18 months of major efforts. Though the inclusion of the rural water supply and sanitation component did not simplify the Project, it introduced a new implementing agency, GWSSB, which at the time was showing improved capability to successfully complete the the separate (and also restructured) Gujarat Water Supply Project. It therefore seemed to be able to do the same in the context of the new rural water supply and sanitation component of the Project. In 1991, IDA perceived that the urban component of the Project still had not progressed satisfactorily and appropriately insisted with GOG to strengthen the UPC by: (i) enlarging its authority in coordinating, centrally controlling and guiding the sector entities; and (ii) by placing a senior technical official at the head of the cell. 22. The Project was complex and IDA showed flexibility in adjusting components that did not work or replacing them by more promising elements. During the entire implementation period, the relations between IDA personnel and the officers of GOG, the Beneficiaries and the executing agencies were cordial and cooperative. However, the various personnel changes in IDA's Project supervision and management weakened the effectiveness of the institution's supervision, which in the early stages might have benefited from an increased and sustained stress on policy issues and on covenant compliance. This could have possibly been offset by less tight control of procurement, which in any event should have been more streamlined from the start. In this respect, IDA, to some -8- extent, hampered itself by establishing an exceedingly low threshold for the value of the contracts which it would review ex ante. Furthermore, IDA personnel involved in the Project felt that the supervision budget, at times, failed to account adequately for the Project's complexity and procurement-related supervision needs. The present ICR judges that, on balance, IDA's performance qualifies as "unsatisfactory", mainly due to the basic flaws of the initial Project scope and implementation framework, which the restructuring only partly corrected, and to the insufficiently effective IDA project supervision during the early stages. G. Borrower Performance 23. The financial performance of the main municipal entities was poor before Project start. Indeed, the Project aimed inter alia at improving this aspect of sector performance, especially with respect to the tax collection and recovery of service charges. However, as no quick improvement took place, from early on in the Project, counterpart funding was deficient, and became even more alarmingly so, when the effects of the state-wide drought became increasingly evident. This and the original Project's inherent weaknesses (complexity, lack of realism, and weak ownership by the local entities) discussed previously and exacerbated by the municipal entities' lack of experience with IDA procedures, led to the re-structuring of the Project in an effort to avoid outright cancellation. Even after restructuring, overall performance, especially in the context of the Project's remaining urban components, was less than satisfactory. It improved only after the UPC, at long last, was strengthened. Then, at least some of the urban programs were carried out with reasonable success, in Ahmedabad with the assistance of non-governmental organizations. The execution of the rural water supply and sanitation component proceeded from the start under better auspices, in part because the implementing agency, GWSSB, had previous experience with IDA. As already mentioned, at the very end of the Project, the prospects for the financial recovery of the municipal entities, especially AMC, substantially improved, as the latter was permitted to apply large tariff increases. The corresponding sustained improvements in collection still need to take place. 24. In summary, the Borrower's performance, which was clearly "unsatisfactory" under the original Project, was better under the restructured operation but still rates as "unsatisfactory". H. Assessment of Outcome 25. For the original Project, it is obvious that the outcome must be qualified as unsatisfactory. Though some progress was achieved toward the general goal of reducing deficits in urban infrastructure and services, the sector reached only very few of the relevant sub-objectives and had little chance to fare better without the drastic change that the restructuring brought. Even after the restructuring had taken place, success on the urban components remained limited. (See COG comments in Annex 5.) 26. Nevertheless, solid waste management in Ahmedabad was enhanced, and water supply facilities in East Ahmedabad have benefited some 40,000 people. In Surat, the completed storm drains reduced flooding in areas inhabited by some 1.1 million people, the water supply component -9- provided an additional 50,000 people with safe water, area development made new living facilities available to 2,000 families, and some 5,000 families enjoy improved living conditions due to the slum upgrading programs. In Vadodara, new storm drainage provided flood relief to a population of some 460,000, the strengthening of water supply will benefit some 80,000 people, and the slum upgrading reached about 850 families. Rajkot and Jamnagar have enhanced their capabilities in solid waste management towards a better urban environment. The essentially rural component, once completed, which is expected to take place in 1996/97, will provide safe water in over 1000 individual villages with a total population of some 1.7 million. Further, over 70,000 low cost rural sanitation units in 19 districts will benefit some 350,000 people and about 20,000 urban sanitation units will improve the well-being of some 130,000 people in Ahmedabad. See also Annex 3. 27. At GOG level, TPVD has improved its planning capability through acquisition of aerial photography interpretation equipment to develop improved town planning schemes. The cities that participated in the training through GMFB developed better accounting, in part by the adoption of accrual systems and the use of computers acquired under the Project. Employing consultants under the Project, municipal entities improved their planning and operational performance. There also seems to have been in the latest stages of the Project an improvement in the attitudes of municipal personnel concerned, promising improved ownership of endeavors similar to the Project's. In part as a consequence of the training through GMFB included in the Project's institutional improvement component, the municipalities have raised their financial performance. 28. Even if the outcome of the restructured project was substantially better than that which the original Project was on the way to achieve, it still rates all in all as "unsatisfactory". The fact that it is impossible, on the basis of the available information, to calculate ex-post economic returns on the Project and/or its components, and to define satisfactorily whether the achievements are commensurate with the invested IDA resources, both human and financial, is felt to re-inforce this assessment. I. Future Operations 29. The implementing agencies have prepared operating plans for some important water supply facilities to which the Project provided significant additions. Other agencies are still preparing similar outlooks for Project items they operate. GWSSB, in particular, plans to set forth such plans for the rural water supply schemes. The documents presently available are essentially rough projections of the operations without concrete proposals for measures to assure that the assumed goals are achieved. Therefore, they do not qualify as operation plans, as required by IDA for its ICR. The validity of the submitted projections largely depends on the municipal bodies' ability to raise the resources for appropriate O&M. Presently, GOG still (directly and/or indirectly) provides subsidies to the cost of debt service, replacement, and future investment. There are encouraging signs that, in the future, such subsidies will be substantially reduced and that the municipal bodies will gradually improve their ability to sustain themselves. How fast this will be achieved depends to a large extent on the continuation of the institutional improvements in part set in motion under the Project and, last but not least, on the political will to achieve self-sustainability, which invariably is at a high political cost. -10- J. Key Lessons Learned 30. The Project and its outcomes suggest the following main lessons, some of which are not new but seem difficult to incorporate effectively in the preparation and implementation of the Bank Group's projects: (a) The Project lacked realism, partly due to hasty preparation apparently related to IDA's concern to have a large impact on the sector quickly. This fact is somewhat obscured by the occurrence and consequences of the major drought, mostly identified as the main factor that negatively affected Project implementation and forced IDA to restructure the operation. However, even without this uncontrollable factor, the operation had little prospect for success. A basic principle which should have been applied more firmly is that, at any point in time, the Project implementing agencies must have the capability (if necessary, assisted by consultants and other entities) to carry out the Project measures foreseen for that time. In particular, the basic ability to implement the initial strategies and measures must be in place already at the Project's start. (b) The Project should have had less components and objectives, to allow for the weakness of the implementing agencies which were already evident at Project preparation. A concentration on advancing reforms and institutional strengthening in "core" public urban activities such as water supply, waste management and other crucial environmental aspects, rather than allowing more diversified minicipal interests to be encompassed within the Project, could have better fulfilled this condition, wherever such measures in "core" areas were clearly identified as feasible (with appropriate early Technical Assistance and/or supporting consultancy services) in the project environment prevailing at the time. The earliest possible setting up of a strong Project coordinating body, like the Urban Project Cell as it worked in the later years, would have substantially improved these prospects, particularly if such a body is clearly tasked with unifying the approach to design, procurement and execution of similar Project components in different places by different executing agencies. However, such an entity should also be designed to progressively transcend its initial role in the Project, to extend its expertise and demonstrated capacities throughout the Project's institutional context. Otherwise the coordinating body tends to disappear on project completion, thus reducing the longer-term institutional impact and sustainability of the operation. (c) The implementation prospects for complex projects involving urban services and investments would be strengthened if, at project launch, a strong intermediary capacity is established. The role, mandate and authority of such an entity should considerably exceed those of UPC, as they should include wide responsibility for: (i) project implementation performance; (ii) developmental support to all implementing agencies; and (iii) a clear focus on achievement of financial objectives and improvements to financial management in the participating entities. (d) In complex projects, even if much less complicated than this Project, monitoring physical progress and procurement should be more streamlined from the outset to ensure that the - 11 - Bank Group staff responsible for project supervision are better able to focus on the main issues, which should only occasionally be in procurement. The monitoring framework should be aimed at ensuring that supervision missions avoid spending excessive time checking on procurement status and physical progress in many sub-projects, and can focus on more strategic issues. (e) A project restructuring should address the core weaknesses that prompted the project modification. In this case, the restructuring of the Project made it, if anything, more complex, as more items were added than deleted, though the goals of the new components were prima facie easier to achieve than those for the deleted items. Furthermore, the addition of a rural water supply and sanitation component introduced an essentially new type of specialty into the Project mix, increasing the difficulties for IDA's supervision. (f) There is a need to take fuller account of the lessons learned from past urban projects during preparation of future projects, particularly with regard to size and the impact of complexity on project outcomes. Clearly, a tradeoff must be made between the desire for quick, large scale projects with perceived major sectoral impacts, and smaller, more manageable, and ultimately more sustainable projects that are more in line with the existing reality of weak institutions and, in the case of municipalities, the slow pace of financial devolution. (g) IDA's budgeting for supervision should take more account of the complexity of a project and the capabilities of the Borrower and Beneficiary agencies. The corollary is that IDA should avoid committing itself to particularly complex projects which, in view of the institution's budgetary situation (already tightening in the 1980s), are likely to be too costly to effectively supervise. -12- PART II. STATISTICAL TABLES Table la: Summary of Assessments (for Original Project) A. Achievement of Objectives Substantial Partial Negligible Not Applicable (x) (x) (x) (x) Macroeconomic policies () () () (x) Sector policies () () (x)( Financial objectives () ( (x) () Institutional Development () (x) () () Physical objectives () (x) () () Poverty reduction () () (x) () Gender concerns () () () (x) Other social objectives () () () (x) Environmental objectives () (x) () () Public sector management () (x) ( Private sector management () () () (x) B. Project sustainability Lik&l Unlikely Uncertain (x) (x) (x) () () (x) C. Bank Performance Highly Satisfactory Satisfactory Deficient (x) (x) (x) Identification () () (x) Preparation assistance () () (x) Appraisal () () (x) Supervision () () (x) D. Borrower performance Highiy Saisfactory Satisfactoyn Deficient (x) (x) (x) Preparation () () (x) Implementation () () (x) Covenant compliance () () (x) Operation (if applicable) () () (x) D. Assessment of Outcome Highiy satisfactor Satisfactory Unsatisfactory Highy unsatisfactory (x) (x) (x) (x) () () (x) () - 13 - Table 1b: Summary of Assessments (for Restructured Project) A. Achievement of Objectives Substantial Partial Negligible Not Applicable (x) (x) (x) (x) Macroeconomic policies () () () (x) Sector policies () (x) () () Financial objectives () (x) () Institutional Development () (x) () () Physical objectives () (x) () Poverty reduction () () (x) () Gender concerns () () () (x) Other social objectives () () () (x) Environmental objectives (x) () ( Public sector management (x) () ( Private sector management () () () (x) B. Proeect sustainabilit Lialy Unlikely Uncerain (x) (x) (x) () () (x) C. Bank Performance Highiv Satisfactor Satisfactory Deficient (x) (x) (x) Identification () (x) () Preparation assistance () (x) () Appraisal () (x) () Supervision C) (x) C) D. Borrower performance Highly Satisfactory Satisfacto Deficient (x) (x) (x) Preparation () (x) () Implementation () C) (x) Covenant compliance () (x) () Operation (if applicable) C) () (x) D. Assessment of Outcome Highly satisfactory Satisfactory Unsatisfactory Highly unsatisfactory (x) (x) (x) (x) () ( ) (x) () -14- Table 2: Related Bank Loans/Credits Loan/Credit Tide and Nr. Perpose Year of Status Approval Preceding Operations: 1. Calcutta Urban Development Improve the city's physical environment; strengthen 1973 Audited by Credit 0427-IN Calcutta Metropolitan Development Authority; OED in 1982 induce better planning and implementation of urban (Report 4023) development; support a broad investment program. 2. Madras Urban Development Develop low cost solutions for shelter, water supply, 1977 Audited by Credit 0687-IN sewerage, transport, and employment; promote full OED in 1986 cost recovery; strengthen planning, provision of (Report 6330) sites, services, and infrastructure; and technical assistance (TA). 3. Second Calcutta Urban Development Continuation of previous Calcutta projects. 1977 PCR processed Credit o756-IN by OED in 1987 (Report 15970) 4. Second Madras Urban Development Increase provision of serviced sites to low income 1980 Audited by Credit 1082-IN population; strengthen sector institutions. OED in 1992 (Rep. 10579) 5. Kanpur Urban Development Help implement 4 1/2 year tranche of GOG's water 1981 Audited by Credit 1185-IN supply and sewerage program, including TA. OED in 1992 (Rep. 10579) 6. Gujarat Water and Sewerage Support provision of site infrastructure and slum 1982 Credit closed Credit 1280-IN upgrading; TA 12/31/91; ICR issued 7. Third Calcutta Urban Development Continuation of previous Calcutta project. 1983 PCR processed Credit 1369-IN in 1993 8. Bombay Urban Development Improve the city's physical environment; strengthen 1985 Credit closed Credit 1544-IN Bombay Metropolitan and Regional Development 09/30/94; ICR Authority; induce better planning and issued implementation of urban development; support a broad investment program. Following Operations Help institution building; support provide shelter 1987 Credit to be 1. Uttar Pradesh Urban Development and urban transport; upgrade slums; TA. closed 03/31/96 Credit 1780-IN. 2. Tamil Nadu Urban Development Support institution building and provision of shelter 1988 Credit closed Credit 1923-IN and urban transport; TA. 09/30/96 - 15- Table 3: Project Timetable Steps in Project Cycle Date Planned Actual Date Identification 11/83 Preparation 01-10/84 Appraisal 11/84 Negotiations 11/85 Board presentation 12/85 Signing 04/86 Effectiveness 07/86 11/86 Project completion 06/92 1996 Loan closing 12/92 03/95 Table 4: Loan/Credit Disbursements; Cumulative (Estimated and Actual) FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 FY96 Appraisal Estimate 3.10 11.78 21.08 31.00 42.16 55.80 62.00 (million US$) Revised Estimate 0.00 5.01 5.38 62.00 (million US$) Actual (million US$) 0.00 5.01 5.38 25.88 32.27 34.30 43.07 47.33 52.2 64.67 Actual in Terms of 0% 43% 26% 83% 77% 61% 69% 76% 84% 104% Appraisal Estimate Actual (million SDR) 0.00 3.84 4.12 19.88 24.58 26.05 32.29 35.32 38.67 46.74 Table 5: Key Indicators for Project Implementation Not applicable as the Project predates the standard requirement for key indicators. Table 6: Key Operators for Project Operation Not available; only the larger implementing agencies have prepared operating plans for municipal water supply services (see Annex 4). - 16- Table 7: Studies Included in Project Purpose as Defined Study at Appraisal/Redefined Status Impact of Study 1. Urban Strategy for To analyze existing Completed Report submitted by State of Gujarat urban growth patterns NIUA is utilized for and suggest alternate various development strategies of purposes. development. 2. Urban Monitoring To study the existing Completed Report submitted by System monitoring system and TCS is implemented to suggest suitable for monitoring the monitoring system for WB projects. WB projects. 3. Financial To study the prevailing Report completed SMC, VMC and Consultancy accounting system in JMC have Municipal Corporations introduced the and to introduce the accrual accounting accrual accounting system and others system. are on process. 4. Mehsana Fluoride To detect the excessive Completed On the basis of the Study fluoride concentration in finding of the study Mehsana district, study GWSSB prepared its impact and suggest Second Rural Water suitable improvements. Supply Project. 5. GWSSB To strengthen and Completed Report is under Institutional Studies improve the institutional review by GOG. capacity of GWSSB. 6. Mehsana Water To provide potable Completed Report is under Supply Project drinking water to review by GWSSB. villages affected by excessive fluoride in the existing ground water supply. - 17- Table 8a: Project Costs. Item Estimate of Actual / Restructure Latest d Project /1 Estimate /IL4 Local Foreign Total Million US$ Million US$ Million USS Million USS Million USS Area Development 9.3 1.3 10.6 8.1 Town Planning 9.2 1.3 10.5 4.9 Slum Upgrading 8.3 0.7 9.0 4.3 | 42.9 /5 Solid Waste 10.3 1.8 12.1 6.6 Management Urban Infrastructure 36.2 5.4 41.6 36.9 T.A. and Training 2.3 0.1 2.4 4.3 Rural Water Supply --- --- --- 53.7 37.6 Total Base Cost 75.6 10.6 86.2 118.8 /2 Physical Contingencies 5.1 0.7 5.8 Design, Supervision, and 5.7 0.5 6.2 Management Price Contingencies 28.3 4.0 32.3 11.9/3 Total Project Costs 114.7 15.8 130.5 130.7 80.5 / Notes: /1 Neither the documents on which the processing of the Project restructuring was based nor those available at the time the present ICR was prepared, set forth a breakdown of costs in local and foreign components. /2 The figures include physical contingencies, design, supervision, and management. /3 The restructuring documents do not set forth price contingencies; the figures given here are estimated on the basis of the SAR and the assumed time schedule for the modified project using the assumptions of the SAR for the expected inflation rates. /4 ICR estimate based on corresponding cost estimates in Rs. by Borrower. /15 Sum of the first six items (for breakdown by cities, see Annex 2). /& Includes design, supervision, and management. /7 Actual dollar amounts are based on conversion at an average exchange rate over the period of the project. As the local component was high, project implementation late, and the Rupee weakening against the US$, the total project cost in US$ resulted low even compared to the amount estimated at Project restructuring. - 18- Table 8b: Project Financing Sonta Appraisal Estimate (million US$) Local Foreign Total Restructured Latest Costs Costs Project Estimate/ Actual IBRD/IDA: 46.27 15.73 62.00 73.10 64.67 Cofinancing institutions: 0.00 0.00 0.00 0.00 0.00 Other external sources: 0.00 0.00 0.00 0.00 0.00 Domestic contribution: 68.50 0.00 69.50 57.65 15.84 Total: 114.77 15.73 130.51 130.75 80.51 Table 9: Economic Costs and Benefits At the time of Project restructuring, project content was fundamentally changed, but no new EIRRs determined. This applies in particular to the rural water supply and sanitation component, which was a new component. Therefore, the ICR cannot set forth a re-evaluation of the returns. - 19 - Table 10: Status of Legal Covenants Agree- Section Covenant Present Original Revised Description of Comments ment type status fulfill- fulfill- covenant ment ment date date Project 2.01(a) 3 C Gujarat shall relend funds Complied with terms of loans. At equivalent to $41.7 million out restructuring costs of AMC of the proceeds of the Credit to components reduced by 1/2 AMC under a Subsidiary Loan (covenant not changed). The loan Agreement to be entered into would have met 62% of SAR est. between Gujarat and AMC. costs & now after adjusting for XR These funds are to be on-lent at & AMC component would meet an interest rate of not less than 250% of AMC est. costs. 8.7 5% pa and repaid over a period of 20 years, including a 4-year grace period 2.01(a) 4 C GOG shall provide, or cause to GOG provides loans to urban be provided, the funds, agencies to meet 2/3 of project facilities, services and other costs, 100% grant funds for urban resources required for the inst. strengthening & for GWSSB project by the implementing Rural WS components. Urban Agencies Agencies cannot meet counterpart contributions; GOG from late 1991 agreed to provide funds. 2.01(b), 2 C 12/31/86 GOG shall ensure that Last results for FY 1993/94 show Sch. beginning with financial year compliance. 2(3) 1985/86, the Municipal Corporations are able to meet all expenditure chargeable to revenue from local taxes and charges, income from property, and normal grants, and that after financial year 1985/86, their revenue accounts shall be kept in balance. 2.0 1(b), 2 C 3/31/90 GOG shall cause AMC to Sch. apply, as appropriate, revenue 2(4) increases and/or cost reduction increases and/or cost reduction (b); policies so as to ensure that by 3.0() March31, 199, the cost of operation, including depreciation, and maintenance are covered by user charges for water supply and special taxes for sewerage imposed and collected from said users. - 20 - Table 10: Status of Legal Covenants (cont'd) Agree Section Covenant Present Original Revised Description of Comments -ment type status fulfill- fulfill- covenant ment ment date date 2.01(b), 2 C 03/31/93 After 03/31/88, GOG shall cause AMC in consultation with Sch. 2(4) AMC to apply as appropriate, GOG has implemented a revenue increases and/or cost time-based action plan to (c), reduction policies so as to ensure achieve compliance. 3.0(iii) that by 03/31/93 the cost of operation and maintenance and debt service, excluding depreciation, are covered by user charges for water supply and special taxes for sewerage imposed and collected from said users. 2.01 (b), 2 C Beneficiary selection criteria, All but one Area Sch. 2(5) including price levels, the terms Development Scheme has and conditions of lease and of been deleted from the hire/purchase arrangements in project. In Surat ADS an Area Development Schemes existing community of slum shall be satisfactory to the residents are the Association and include, inter beneficiaries. Cost recovery alia, an interest rate of not less is acceptable to the Bank. than 12% pa to the beneficiaries. 2.0 1(b), 2 C GOG shall ensure that the cost of Cost recovery is acceptable Sch. 2(6) land and improvements shall be to the Bank. recovered from the beneficiaries (in respect of slum upgrading) and the terms and conditions of sale or lease shall be such as shall be satisfactory to the Association which shall include, inter alia, an interest rate of not less than 12% pa. 2.01 (b), 2 C GOG shall ensure that water Cost recovery is acceptable Sch.r2(7) supply and sewerage facilities to the Bank. provided on slum upgrading sites shall be transferred to the local municipal governments for management and the prevailing water and sewerage rates shall be charged to the beneficiaries with individual connections. -21 - Table 10: Status of Legal Covenants (cont'd) Agree Section Covenant Present Original Revised Description of Comments -ment type status fulfill- fulfill- covenant ment ment date date 2.01(b), 10 C 12/31/86 GOG shall annually review Action Plans prepared and Sch. 2(9) and update the Action Plan provided in quarterly (dated Nov. 6, 1985 which progress reports. indicates the series of operational, financial and administrative actions to be undertaken under the project) in consultation with the Association. 2.0 1(b), 5 C 12/31/89 GOG shall strengthen the Institutional strengthening Sch. institutional capabilities of the components are included in 2(11) Implementing Agencies and the project action plan noted the PMC in accordance with above and were an action plan satisfactory to implemented. the Association. (A separate letter of 10/06/89 lists those elements of an action. 2.06 5 C GOG shall, upon receipt of the The Cell is operational and consultant's report on functioning quite strengthening the UPC, inform satisfactorily. the Association of actions to be taken. 3.00 5 C GOG shall cause the None. Implementing Agencies to take out and maintain with responsible insurers, or make other provision satisfactory to the Association for insurance against such risks and in such amounts as shall be consistent with appropriate practice. 3.04 1 C 09/30/88 The GOI shall have the Received for FYI993/94. Special Account for each fiscal year audited and furnished to the Association not later than 6 months after the end of each fiscal year (i.e. by Sept. 30). - 22 - Table 10: Status of Legal Covenants (cont'd) Agree Section Covenant Present Original Revised Description of Comments -ment type status fulfill- fulfill- covenant ment ment date date 4.01 1 C 12/31/87 GOG shall cause the None. (a&b), Implementing Agencies to Sch. maintain separate records 2(a&b) and accounts related to the Project and to furnish to the Association audited copies within 9 months of the end of each financial year (i.e. by December 31). The audit is to be in accordance with appropriate auditing principles consistently applied by independent auditors acceptable to the Association.. 4.01(c), 1 C 12/31/87 Implementing Agencies to None. 2(c) maintain separate records and accounts of SOEs. Such accounts are to be included in the annual audit of the project accounts, but a separate audit opinion is required to the effect that such expenditures have been used for the purposes for which they were provided. Credit 5.01 3 C A Subsidiary Loan Agreement executed Sept. Agreement may be 12, 1986. executed on behalf of Gujarat and AMC. Covenant types: 8. = Indigenous people 9. = Monitoring, review, and reporting I. = Accounts/audits 10. = Project implementation not covered by categories 1-9 2. = Financial performance/revenue generation from 11. = Sectoral or cross-sectoral budgetary or other resource beneficiaries allocation 3. = Flow and utilization of project funds 12. = Sectoral or cross-sectoral policy/ 4. = Counterpart funding regulatory/institutional action 5. = Management aspects of the project or executing 13. = Other agency C = covenant complied with 6. = Environmental covenants CD = complied with after delay 7. = Involuntary resettlement CP = complied with partially 8. = Present Status: NC = not complied with - 23 - Table 11: Compliance with Operational Manual Statements The ICR did not identify any deviation of substance from the relevant OMS. Table 12: Bank Resources - Staff Inputs Stage of Planned Revised Actual Project Cycle Weeks 1000USS Weeks 1000USS Weeks 1000US$ Through appraisal n.a. n.a. 109.2 140.7 Appraisal - Board n.a. n.a. 10.9 18.7 Board - effectiveness n.a. n.a. LL Li Supervision n.a. n.a. 164.3 310.6 Completion n.a. n.a. 5.0 ZZ 11.2 Z2 Total n.a. n.a. 289.4 481.2 L. Included under Supervision. 12 Estimated. - 24 - Table 13: Bank Resources - Missions Stage of Month/ Number of Days Specialized Staff Performance rating Types of Problems Project Cycle Year Persons in Field Skills Represented Inlement&at Develop. us Inpact Through 09/82 6 15 ME,FA,UE,BIS appraisal 06/83 5 12 AP,ME,FA,UD 11- 5 12 AP,ME,FA,UP,L 12/83 6 12 AP,ME,FA,UE,MF 05- 06/84 3 4 AP,ME 09/84 Appraisal 11/84 4 14 AP,ME,FA -- -- -- through Board approval Board 05/86 3 9 FA,PM -- -- -- approval through effectiveness Supervision 02/87 4 12 AP,ME,FA,PM 2 3 slow start 10/87 3 11 FA,PM 2 2 Continued slow progress, aL project restructuring envisaged. Restructuring mission. 01- 4 19 AP,FA,PM 2 2 Progress slow. 02/88 1 4 AP 2 2 Progress slow on restructured 10/88 project. 3 12 AP,FA 2 2 02/89 Progress slightly improved. a Difficulties in design ofslum upgrading. 4 12 AP,FA,UP,RW 2 2 04/90 Weak implementing agencies aL and central monitoring. Progress on urban component still slow. 3 15 FA,UP 2 2 1 1/90 (see above) (see above) 3 11 AP,FA,UP 2 2 03- 04/91 Cost recovery (see above) -25 - Table 13: Bank Resources - Missions (cont'd) Stage of Month/ Number of Days Specialized Staff Performance rating Types of Problems Project Year Persons in Field Skills Represented Cycle InplemnnStat Develop us Inwact 10-11/91 6 12 UP,PS,SW,FA 2 2 2/92 4 13 UP,SW,FA,RW 2 2 10/92 7 11 UP,FA,RW 2 2 UP,FA 06-07/93 2 8 FA 2 2 02/94 2 4 FA 10/94 2 Completion 03/95 4 3 UP,FA -- - Funding of incomplete project components. /1 Mission also supervising Gujarat Water Supply Project (Credit 1280-IN) ME: Municipal Engineer FA: Financial Analyst UE: Urban Economist BI: Buildings Industries Specialist AP: Architect /Planner L: Lawyer RW: Rural Water Supply Specialist PM: UNDP Project Manager - 26 - Ann.. GUJARAT URBAN DEVELOPMENT PROJECT Composition and Approximate Cost Breakdown of Original and Restructured Project Crores Rs. Crores Rs. Million USS Million USS Item Original Restructured Original Restructured Project Project Project Project Area Development - Ahmedabad 3.60 0.00 3.00 0.00 - Surat 1.92 1.92 1.60 1.47 -Gorwa 6.08 7.27 5.06 5.59 - Ankleshwar 0.98 0.00 0.82 0.00 -Palanpur 1.35 1.35 1.13 1.04 Subtotal 13.93 10.54 11.61 8.11 Town Planning Schemes - Ahmedabad 10.77 0.00 8.97 0.00 - Surat 3.32 3.32 2.77 2.56 - Ankleshwar 1.23 0.00 1.03 0.00 - Anand 0.00 1.40 0.00 1.08 - Petland 0.00 1.60 0.00 1.23 Subtotal 15.32 6.32 12.77 4.86 Slum UDeradine - Ahmedabad 7.37 3.03 6.15 2.33 - Vadodara 0.34 0.34 0.28 0.26 - Surat 1.13 1.13 0.94 0.87 - Jamnagar 3.02 1.10 2.52 0.85 - Jetpur 0.75 0.00 0.63 0.00 Subtotal 12.61 5.59 10.51 4.30 Solid Waste Management - Ahmedabad 5.47 2.31 4.56 1.78 - Vadodara 2.64 2.64 2.20 2.03 - Surat 3.76 2.61 3.13 2.01 - Rajkot 2.19 1.06 1.82 0.82 - Jamnagar 1.33 0.00 1.11 0.00 Subtotal 15.38 8.62 12.82 6.63 -27 - Annex 1 (con'd) Urban Infrastructure -Ahmedabad 52/09 35.16 43.41 27.05 -Vadodara 1.62 1.62 1.35 1.24 - Surat 4.01 9.00 3.34 6.92 - Jamnagar 0.00 0.75 0.00 0.58 - Anand 0.00 1.48 0.00 1.14 Subtotal 57.72 48.01 48.10 36.93 Institutional Strengthening -Ahmedabad 1.47 1.47 1.22 1.13 - Surat 0.04 0.00 0.03 0.00 - Rajkot 0.02 0.02 0.02 0.02 - Jamnagar 0.02 0.02 0.02 0.02 - GHB 0.04 0.04 0.03 0.03 - GMFB 0.95 0.95 0.79 0.73 - Survey/Photog./Mapping 0.28 0.65 0.23 0.50 - Unallocated 0.00 2.39 0.00 1.84 Subtotal 2.82 5.54 2.35 4.27 Intals - Ahmedabad 80.77 41.97 67.31 32.28 - Vadodara 4.59 4.59 3.83 3.53 - Surat 14.17 17.98 11.81 13.83 -Rajkot 2.21 1.08 1.84 0.83 -Jamnagar 4.37 1.87 3.65 1.44 -Gorwa 6.08 7.27 5.06 5.59 - Ankleshwar 2.21 0.00 1.84 0.00 - Palanpur 1.35 1.35 1.13 1.04 - Jetpur 0.75 0.00 0.63 0.00 - Anand 0.00 2.88 0.00 2.22 - Petland 0.00 1.60 0.00 1.23 - GHB 0.04 0.04 0.03 0.03 - GMFB 0.95 0.95 0.79 0.73 - Survey/Photog./Mapping 0.28 0.65 0.23 0.50 - Unallocated (Others) 0L1 Li1q2 L92 117.90 84.74 98.25 65.18 -28- Annex 2 GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT 1643-IN) Base Costs and Physical Contingencies Crores RIs. Crores Rs. Crores Rs. Million US$ Million US$ Million US$ Item Original Restr. Actual Original Restr. Actual Project Project Estimated Project (#1) Project (#2) (#4) - Ahmedabad 80.77 41.97 62.98 67.31 32.28 24.22 - Varodha 4.59 4.59 16.51 3.83 3.53 6.35 - Surat 14.17 17.98 22.62 11.81 13.83 8.70 - Rajkot 2.21 1.08 1.57 1.84 0.83 0.60 - Jamnagar 4.37 1.87 1.15 3.65 1.44 0.44 - Gorwa 6.08 7.27 - - . - - 5.06 5.59 0.00 - Ankleshwar 2.21 0.00 - -. - - 1.84 0.00 0.00 - Palanpur 1.35 1.35 - -. -- 1.13 1.04 0.00 - Jetpur 0.75 0.00 - -. - - 0.63 0.00 0.00 - Anand 0.00 2.88 4.39 0.00 2.22 1.69 - Petland 0.00 1.60 -- . - 0.00 1.23 0.00 - GHB 0.04 0.04 - -. - - 0.03 0.03 0.00 - GMFB 0.95 0.95 1.01 0.79 0.73 0.39 - Survey/Photog./Mapping 0.28 0.65 0.75 0.23 0.50 0.29 - Unallocated (Others) 0.11 2.50 0.65 0.09 1.92 0.25 117.90 84.74 111.63 98.25 65.18 42.93 SAR 117.89 98.24 0.00 0.00 UPC Report 117.88 84.76 98.23 65.20 0.00 Rural Water Supply and Sanitation - GWSSB 0.00 69.75 97.70 0.00 53.65 37.58 Total Excluding Price Contingencies 117.89 154.49 209.33 98.24 118.84 80.51 - 29 - Annex 2 (con ) Crores Rs. Crores Rs. Crores Rs. Million USS Million USS Million USS Original Restr. Actual Original Restr. Actual Project Project Estimated Project (#1) Project (#2) (#4) Price Contingencies (#3) 38.72 15.49 0.00 32.27 11.91 0.00 Total Including Price Contingencies 156.61 169.97 209.33 130.51 130.75 80.51 1: 1 US$= Rs 12 (as per SAR 2: 1US$ = Rs 13 (as per restructuring documents 3: The restructuring documents do not set forth the price contingencies; the figures given here are estimated on the basis of the SAR and the assumed time schedule for the modified project using the assumptions of the SAR for the expected inflation rates. 4: ICR estimate based on corresponding cost estimates in Rs. - 30 - Annex 3 GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT 1643-IN) THE PROJECT, ITS RESTRUCTURING, AND THE BENEFITS ACHIEVED 1. As mentioned under table 9, the ICR cannot quantify the benefits resulting from the project. Therefore, the following discusses the main project items, how they were modified by project restructuring, and roughly sets forth the results achieved, though it is difficult to relate these to the quantitative goals of the project, both original and restructured. See also Annexes 1 and 2. Original Items As Modified At Project Restructuring 2. Ahmedabad Municipal Corporation (AMC) was expected to carry out a US$ 67 million program covering area development, town planning schemes, slum upgrading, solid waste management, priority urban infrastructure, and institutional strengthening. At restructuring, the first two items were eliminated and the other ones roughly cut by half. Nevertheless, by 1995, AMC was able, at least in part due to the project, to provide better water supply as well as improved sewerage pumping and solid waste disposal. It also had made available 20,000 additional latrines to individual low income families. 3. Originally, Surat Municipal Corporation (SMC) was planned to implement a US$ 12 million program in the same six above main fields addressed by the project. At restructuring, the program was increased by some US$ 2 million, whereby the area development, town planning, and solid waste management components were slightly reduced, but the urban infrastructure items about doubled. During project implementation, SMC laid 27 km of storm drains serving some 45 km2, considerably easing the city's water logging problems. It strengthened the water distribution system benefiting about 50,000 people; 2000 families could be accommodated in newly developed areas; some 5000 families benefited from slum upgrading; and solid waste management was improved. 4. For Vadodara Municipal Corporation (VMC) the original project foresaw investments of about US$ 3.8 million, mainly in slum upgrading, solid waste management, and urban infrastructure. Project restructuring only slightly reduced this program. VMC carried out a storm drainage component over 42 km2 which, improved to some extent the ambient conditions of some 460,000 people; some 80,000 people were reached by improved water supply services; about 850 families achieved improved living conditions under the slum upgrading program. Solid waste management was also improved. This added up to investments of about US$ 6.5 million covering a larger array of items than anticipated in 1989. 5. The Rajkot Municipal Corporation (RMC) component of the project was expected to cost some US$ 1.8 million mainly for solid waste management. Project restructuring reduced these -31 - investments to less than half the original amount without changing the priority areas. RMC apparently carried out a substantial part of this curtailed program with reasonable success. Total cost was about 30% less than expected at project restructuring. 6. In Jamnagar, the original project aimed at investments of US$ 3.7 million mainly in slum upgrading and solid waste management. Project restructuring eliminated the latter and substantially reduced the former. Ultimately a modest part of the slum upgrading benefiting some 7300 low income families was carried out under the project at a cost some 30% of the amount expected at project revision. 7. Originally, Anand was not to benefit directly from the project. At restructuring, GOG and IDA identified a US$ 2.2 million component, mainly in town planning and urban infrastructure, that qualified for inclusion under the project. The actual investment in the approved items is expected to amount to some US$1.7 million covering mainly the installation of 4 tubewells, which aimed at improved water supply to some 42,000. 8. The Town Planning And Valuation Department (TPVD) component of about US$ 0.23 at appraisal was doubled at restructuring, but ultimately carried out only to about the original scope. It helped the department substantially increase its capability and provide several Gujarat cities with bases for their urban planning. 9. Training under the project assisted inter alia the Gujarat Municipal Finance Board (GMFB). At project restructuring the originally US$ 0.8 million component was about maintained, but investments of only about half the planned amounts were implemented. These supported GMFB in, inter alia, helping train personnel from various municipalities. In particular, accrual accounting systems were introduced in several cities. Rural Water Supply And Sanitation 10. This component was added at the time of project restructuring. It was planned to cost some US$ 54 million (Rs. 70 crores). Ultimately it is expected to cost some US$ 38 million (Rs. 209 crores). It was composed of items similar to those included in the earlier Gujarat Water Supply project supported by credit 1280-IN. The lower cost seems due, in part, to delays in execution and completion, postponing expenditures beyond the closing date of the project. 11. The Una-Diu Regional Water Supply Scheme in the Junagadh District covering 37 villages with a design population of over 90,000 people was completed with exception of the filtration plant. Thus, in 1995, the presently over 60,000 people living in these villages had at least an adequate supply of raw water. The installation of the filtration plant was re-tendered. 12. The Khadir Island Regional Water Supply Scheme was planned to cover 35 villages with a design population of some 47,000. By mid 1995, only part of the project was completed, but the remainder of the work was expected to be commissioned in 1996. - 32 - 13. The Bhadar Regional Water Supply Scheme was started in 1988, before project restructuring. The project thus helped to complete it. It covered 36 villages and one town with a design population of 85,000 rural and 35,000 urban dwellers. Successful operation of the scheme has started. 14. The Okhmandal Regional Water Supply Scheme also started in 1988, i.e. Before official project restructuring. It covered 39 villages and two towns-and targeted some 75,000 people. By mid-1995, 20 villages were being served. Connection of the remaining towns and villages was expected to occur by 1996, the delays being due to the contractors' slow progress. 15. The Individual Water Supply Scheme covered about 1000 villages with a population of some 1.7 million. The UPC's report does not discuss the rate of success of this component, for which the GWSSB has invested in excess of US$12 million. 16. The Low Cost Sanitation Program For Rural Areas to be covered under the restructured Project was originally to cover the installation of 20,000 latrines. Due to the success of the program, it finally covered some 70,000 latrines in 2,300 villages and benefited some 350,000 people. 17. The project component also included various Rain Water Harvesting Structures And Consultants Services for several studies, which were reported as carried out successfully. - 33 - Annex 4 GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT 1643-IN) Operating Plans - Project Implementing Agencies The following are the operating plans for municipal water supply only, prepared by the four larger implementing agencies under this Project following project closure. WATER SUPPLY SCHEME OPERATIONALPERFORMANCE INDICATORS AHMEDABAD MUNICIPAL CORPORATION Year 1994/95 95/96 96/97 97/98 98/99 9912000 2000/01 Population in Service Area (Nos.) 334101 347465 361364 378818 39081 406485 420196 Population Coverage (Percent) 100 100 100 100 100 100 100 Population Covered (Nos.) 334101 347465 361364 378818 39081 406485 420196 Water Produced (MLD) 159 159 204 204 204 204 204 Water unaccounted for 25 25 25 25 25 25 No. of connections 43000 45000 47000 49000 50000 53000 55000 House Service connections 670 700 730 - 760 790 820 850 Standposts Non-domestic 3300 3500 3700 3900 3900 4100 4200 Revenue collection 72 83 85 89 92 95 100 performance(percent) Staff required for 0 & M (Nos) 80 80 80 80 80 80 80 Trained 0 & M Staff 22 22 22 22 22 22 22 Average no. of connections per 129 143 152 164 174 184 O & M staff Net Revenue (Rs. lakhs) 2948 3417 4784 5568 6454 7480 8669 Net expdr. 0 & M (Rs. lakhs) 3545 4077 4688 5392 6200 7131 8200 Net income (Rs. laks) -597 -660 96 176 254 349 469 -34- Annex 4 WATER SUPPLY SCHEME OPERATIONAL PERFORMANCE INDICATORS SURAT MUNICIPAL CORPORATION Year 1994/95 95/96 96/97 97/98 98/99 99/2000 2000/01 Population in Service Area (Nos.) 1816898 1923000 2028950 2235000 2350000 2456000 2559000 Population Coverage (Percent) 66 67.6 73.93 80.5 89.36 97.71 100 Population Covered (Nos.) 1200000 1300000 1500000 1800000 2100000 2400000 2559000 Water Produced (MLD) 150 200 300 320 400 460 460 Revenue Water (Percent) No. of connections 115951 126000 150000 182000 225000 330000 370000 House Service connections 109000 117180 139000 169000 202500 293700 333000 Standposts Non-domestic 6951 8020 10500 12740 22500 36300 37000 Revenue collection 38.76 40 42 45 50 55 57 performance(percent) Staff required for O & M (Nos) 764 830 1000 1197 1400 2171 2432 Trained O & M Staff 193 209 270 300 377 580 610 Average no. of connections per 152 151 150 152 152 132 153 O & M staff Net Revenue (Rs. lakhs) 248 325 475 630 750 1000 1140 Net expdr. O & M (Rs. lakhs) 955.31 1070 1260 1450 1738 2034 238 Net income (Rs. lakhs) -707.31 -745 -785 -820 -988 -1034 -1098 - 35 - Annex 4 WATER SUPPLY SCHEME OPERATIONAL PERFORMANCE INDICATORS VADODORA MUNICIPAL CORPORATION Year 1994/95 95/96 96/97 97/98 98/99 99/2000 2000/01 Population in Service Area (Nos.) 1174000 1213000 1259000 1291000 1329000 1368000 1404000 Population Coverage (Percent) 61.75 64.2 67 68.2 69.5 70.5 79.5 Population Covered (Nos.) 725000 779000 838000 881000 824000 964000 1004000 Water Produced (MLD) 177 271 271 271 271 271 271 Revenue Water (Percent) 9.68 10.64 11.7 12.87 14.15 15.56 17.11 No. of connections 147000 158000 169000 182000 198000 222000 233000 House Service connections 101000 121000 132000 144000 158000 181000 189000 Standposts 1000 1000 1000 1000 1000 1000 1350 Non-domestic 35000 36000 36000 37000 39000 81000 41000 Revenue collection 76 77 77.5 78 78.5 79 79.5 performance(percent) Staff required for O & M (Nos) 810 850 893 938 985 1033 1085 Trained O & M Staff 453 476 500 527 553 581 610 Average no. of connections per 180 185 189 194 200 206 210 o & M staff Net Revenue (Rs. lakhs) 860.29 946.58 1041.23 1145.35 1259.88 1385.86 1524.44 Net expdr. 0 & M (Rs. lakhs) 1903.64 2094.4 2533.74 2533.74 2787.11 3065.82 3372.4 Net income (Rs. lakhs) -1043.35 -1141.92 -1492.51 -1388.39 -1527.23 -1699.96 -1847.96 -36- Annex 4 WATER SUPPLY SCHEME OPERATIONAL PERFORMANCE INDICATORS ANAND MUNICIPALITY Year 1994/95 95/96 96/97 97/98 98/99 99/2000 2000/01 Population in Service Area (Nos.) 110000 115400 120000 126000 131000 137000 144000 Population Coverage (Percent) 90 91 92 93 95 98 100 Population Covered (Nos.) 99000 105000 110400 117000 124000 134000 144000 Water Produced (MLD) 8 8.4 9 9.2 9.5 10 10.4 Revenue Water (Percent) 0 0 0 0 0 0 0 No. of connections House Service connections 16344 17510 18000 18800 19600 20400 21250 Standposts 130 135 142 150 155 162 170 Non-domestic 20 21 22 24 25 26 27 Revenue collection 78 79 79 80 80 80 80 performance(percent) Staff required for O & M (Nos) 51 54 56 58 61 64 67 Trained O & M Staff 26 28 29 30 31 32 33 Average no. of connections per 323 340 355 370 387 404 415 O & M staff Net Revenue (Rs. lakhs) 1063.93 1200 1300 1400 1525 1650 1800 Net expdr. O & M (Rs. lakhs) 1030.28 1100 1200 1300 1400 1550 1725 Net income (Rs. laks) +33.65 +100 +100 +100 +125 +100 +75 - 37 - Annex 5 BORROWER'S COMMENTS ON THE ICR 1. In the draft Implementation Completion Report (ICR), prepared by the consultants of the Bank, the overall outcome has been rated as unsatisfactory (Para 18 & 21). The slow progress in the project has been given the main reason for the above conclusion. 2. It is true that the progress of the project was slow in the beginning due mainly to the consecutive droughts in the state and some other reasons. But after restructuring of the project and in particular after strengthening of the Urban Project Cell, the project has recorded fair rate of progress which has been accelerated in the last couple of years. 3. It seems that at the time of assessment, the financial and physical progress recorded in the last four years is not given proper weightage. At the end of the credit, the achievement of credit disbursement is more than 98%. Even the March 1995 mission felt that about 5 million SDR would be required to be canceled due to non-utilization within credit life, but only 0.76 MSDR was left undisbursed on the credit closing date. Against the total expenditure of the Rs.981 Million, Rs. 802 Million has been spent during the last four years of the project i.e., about 84%. This reveals that though the progress was slow in the beginning, after strengthening of the Urban Project Cell. Moreover, at no point of time did any Supervisory Mission from the World Bank express "unsatisfactory" remarks on the project implementation. 4. It has been stated in Para 2 of the Preface that 11 MSDR was canceled due to restructuring of the project in 1989. This is not correct. At the time of restructuring only some new rural components were added and some of the non-viable components were dropped. The original credit of 58.5 MSDR was canceled due to exchange rate adjustment following the devaluation of the Indian rupee. 5. In case of the sustainability of benefits, it has been rated as uncertain. The benefit achieved have been discussed in Annex 3 of the draft ICR. Considering the nature of the benefit out of infrastructure development within the project, it is sure that the beneficiaries are definitely going to enjoy the fruits for a long period. 6. In case of economical sustainability, it is evident that in all implementing agencies the revenue account have been brought in balance. This means all the recurring expenditure for maintaining the civic services, including newly provided under the project, is being set by the revenue income. As such, we cannot classify the sustainability as uncertain. 7. In para 28 of the draft ICR, it has been stated that presently COG provides substantial subsidies to the cost of O&M. This is not correct as no subsidy in any form is being passed on to meet the O&M cost of the service. -38- 7. In para 14 of the draft ICR, it has been mentioned that the Urban Project Cell has been dissolved by the Government. Here it is required to clarify that the Urban Project Cell has not been dissolved, but considering the importance of its working Government is thinking to strengthen it. Recently the Gujarat Urban Infrastructure Project has been identified and being implemented by the Urban Project Cell. Rs. 380 Millions have been provided in the State Government budget for the project in the current financial year. 8. At the last but not least, some bold decisions taken by the State Government will reveal the sincerity towards implementation of the project and convenant compliance. a. Amendment in Bombay Provincial Municipal Corporation Act, 1949, to increase the minimum water charges and sewer charges. b. Provided matching contribution to the implementing agencies for the speedy implementation of the project. c. Ensured adequate funding to the project. This has helped a lot in achieving physical progress during the last four years of the credit period. - 39 - Annex 6 GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT 1643-IN) FINAL SUPERVISION MISSION MARCH 15-16, 1995 AIDE MEMOIRE Introduction 1. A World Bank mission comprising Messrs. Ernst Huning (Institutional Specialist, SA2EI), Chandra Godavitarne (Senior Operations Officer, New Delhi Office) and Shyamal Sarkar (Water & Sanitation Engineer, New Delhi Office), visited Gujarat over March 14-16, 1995 to both carry out the 'final supervision' review of the Gujarat Urban Development Project (GUDP), Credit 1643-IN, and initiate the Implementation Completion Report (ICR) process for this Project, in light of the Credit's closure on March 31, 1995. Mr. B. S. Bhavanishankar, local Water & Agriculture Consultant engaged to assist the ICR process for this Project, participated in all aspects of the mission and undertook further GUDP consultations in Gujarat until March 22, 1995. Miss Kim Cuenco (Urban Planning Specialist, SA2AW) and Mr. Karl Kleiner (Senior Water & Sanitation Engineer, SA2AW), in India under separate Terms of Reference, joined the mission to assist in the assessment of strategic preparatory studies financed under this Project for a possible future Mehsana Region rural water supply (RWS) project. 2. Although at this particular time, the relevant senior Government of Gujarat (GOG) officials were necessarily pre-occupied with the post-inauguration needs of the newly-elected State Government, the mission was able to hold valuable brief discussions with them and with key representatives from the particular implementing agencies involved in this Project. A list of the principal officials met is provided at Attachment 1. 3. This Aide-Memoire is comprised of two substantive parts, being respectively the summary of the Final Supervision Mission findings and an outline of the main issues/themes arising during the forthcoming ICR. The first A-M part was outlined at meetings with the respective GOG officials on March 16, 1995, where the operational requirements of the ICR process were also discussed. The overall draft A-M (albeit with the ICR element still necessarily limited to 'outline' coverage) was subsequently presented in draft form to the GOG's Additional Chief Secretary and Secretary for Urban Housing & Urban Development, Mr. V. R. Subba Rao, via Mr. Bhavanishankar prior to the mission's departure from India. A formal communication will be sent from the Bank's headquarters in due course to confirm key aspects covered in this A- M. - 40 - 4. The mission wishes to record its appreciation of the cooperation and assistance extended by all the participating GOG officials to the mission, given both the sensitive post-election circumstances then prevailing and the compact mission timetable. Background 5. This project became effective on November 11, 1986 and was originally scheduled to close on December 31, 1992. In 1988, following a major Bank/GOG review of various implementation difficulties, the project was significantly restructured and in particular, new implementation management and coordination arrangements were agreed to and initiated by GOG. Since then, five project Credit closing date extensions have been granted: (a) the first in late 1992, extending the Credit closing date to April 30, 1993; (b) the second in early 1993, extending the closing date briefly to June 30, 1993, conditional on satisfactory implementation catch-up performance and evidence of improved forward planning by the borrower; (c) the third extension, to 31 December 1993, based on preliminary satisfaction of the June 30, 1993 'forward planning' conditions and to allow time for mutual Bank/GOG consideration of the case for a more substantial extension; (d) the fourth extension, to December 31, 1994, was 'pre-agreed' to follow on from full GOG compliance with conditions set by the Bank in determining the basis for the June and December, 1993 extensions; and (e) the fifth, final extension until March 31, 1995. 6. In both 1992 and 1993, against a background then of significant political and administrative upheaval in Gujarat, the prime basis for the extensions being granted was to enable: (i) completion of various procurement processes and physical works by the Gujarat Water Supply and Sewerage Board (GWSSB) for regional needs and by municipal implementing agencies for Ahmedabad, Anand, Vadodara and Surat under the Project; (ii) commencement of effluent treatment studies and preparation of studies for a possible Mehsana Region RWS project, being financed under this Project; and (iii) implementation of essential policy and managerial reforms by the Ahmedabad Municipal Corporation (AMC) to improve its internal resource generation capability in relation to water supply and sewerage services, alongside agreed capital investments, to help ensure that the benefits from those investments under this Project are sustainable. The final extension, to March 31, 1995, was granted primarily to enable completion of the Mehsana Region RWS project preparation studies and of the few outstanding 'Priority (water & sanitation) Infrastructure' works and services by the participating municipal agencies. -41- Summary of Main Findings 7. At the time of final supervision, a number of works and services were still under implementation by the AMC, the Anand Municipality and the GWSSB under this Credit. In particular, the outstanding AMC works may take up to six months to complete. Some of these are vital components of the sewage conveyance and treatment systems, equipment for sewer cleaning, solid waste management processes and water distribution systems (particularly in East Ahmedabad), which will require the GOG's (and AMC's) own funds to complete after this Project's closure (e.g. a requirement of some Rs. 50 million for the East Ahmedabad works). 8. Ahmedabad Municipal Corporation have improved their implementation performance substantially over 1994/95. The AMC works include some that were transferred incomplete from a previous Gujarat WS&S Project (Cr. 1280-IN), and even then were regarded as vital components of the water, sanitation and waste management needs of the Ahmedabad area. However, slow and excessively tentative procurement decision-making, procedural bottlenecks, late completion of contract negotiations and slow contract payments were consistently evident in AMC activity during this Project until 1994. Now, under changed IAS (non-political) municipal management, the Corporation (i) has eliminated its long-standing financial overdraft and is maintaining a significant funds surplus for plan-based investments, through improved rate collections and tariff changes; (ii) is actively pursuing municipal water quality policies and intervening in industrial pollution/environmental hazards, and (iii) is maintaining improved delivery of basic municipal services throughout the Ahmedabad area. AMC has also now constructed some 16,000 toilets in metropolitan Ahmedabad, with direct municipal benefits. 9. Anand Municipal Corporation have completed all works except for the procurement of some 4,000 water meters for the important pilot scheme for 24-hour water supply for a part of Anand, involving a modest expenditure of some Rs. 12-15 lahks for local procurement of modem domestic water meters. Although the Bank had advised GOG of some inconsistencies in the proposed technical specifications for the procurement of these meters, this procurement is below the threshold for prior review by the Bank. Accordingly, the mission advised that once these inconsistencies are rectified, and provided the latest Bureau of India Standards (BIS) specifications for water meters in India are specified, the GOG/Anand Municipality can proceed quickly with local procurement action before Credit closure (as also discussed with the UPC staff). 10. The GWSSB has, in addition to a strong implementation record on regional and rural WS&S investments during the Project, also completed implementation of about 70,000 low-cost sanitation units in rural areas in an excellent effort. Some small works in regional water supply schemes under this Project are, however, still to be completed. The training activities and programs provided by the Jalseva Training Institute (JTI), administered by the GWSSB, are well developed and the Institute's capabilities are well regarded, technically and managerially. 11. The three main strategic studies, commenced over 1993/94 and financed under this Credit, have been delayed through diversion of key professional and governmental resources during the 1994 'plague epidemic' upheavals in Gujarat. However, they are expected to achieve - 42 - draft Final Reports by Credit closure and be fully finalized for GOG consideration within the next 3-4 months. These are the AMC's 'common effluent treatment' study and the two studies centered on the GWSSB, namely the Mehsana Region 'water supply strategy' study and the institutional and financial management study of GWSSB. The latter two will both have significant impact on the prospects for a proposed Mehsana Region RWS project, provided the various component studies are now more strongly integrated and focused than previously evident, in line with Bank comments made before and during this mission. For the GWSSB 'institutional and financial management' studies, the suggestion made by the Bank following the last mission, that the GOG critically review the nature and scope of the Board's future role in State-wide RWS facilitation, has apparently been referred to the study consultants for consideration without a distinct indication of the GOG stance at this stage. 12. Taken together, in the context of the overall Project, the amount of outstanding works and services are relatively small, and have a very good chance of completion over the next few months. The mission therefore recommended that GOG (and/or the applicable agency) continue to make the necessary funds for these available even after the Credit's closure. Credit Usage and Expenditure 13. The original, revised and actual expenditure status across the various implementing agencies in GUDP as advised to the mission is presented at Attachment 2. By the Credit closing date of March 31, 1995, on indications at the time of the mission, the likely Credit utilization may leave about 5 million SDRs unused and liable to cancellation. GOG will make every effort to expedite final eligible expenditures before the Credit closing date and then the preparation of applications for reimbursement of such expenditures, and to ensure that these are received by the Bank no later than four months after the closing date (i.e. July 31, 1995). Main Issues 14. Municipal Finances: The improvement of the finances of participating municipalities was a prime objective of this Project. While this has not been fully achieved, two important changes have taken place. 15. Firstly, GOG has amended the relevant legislation for the municipal corporations to remove stipulations on minimum charges for WS&S services and to vest enhanced revenue- raising powers in each municipal body. Secondly, the State's High Court has ruled that where the authorities' property tax demand is to be disputed by property owners, 75% of the notified tax demand must nonetheless be paid before court consideration of such a dispute. 16. An action plan to improve municipal finances (taking also into account these two measures) was agreed upon with all the GUDP participating municipalities some time ago, however the actual situation is only just beginning to show substantive improvement. Further improvement in tariff and tax settings and in collection performance by the municipalities and agencies, are required to achieve an ongoing match between revenue and outlays in discharging their mandated municipal functions (inclusive of O&M), let alone to facilitate their intended level of municipal investments in infrastructure and resources necessary to sustain these services. - 43 - 17. Adoption of New Accounting Systems/Methods: All six municipal corporations were to participate in the development and implementation of new/revised accrual-based computerized accounting systems for their financial management functions. Only Surat has completed the process; however, four others have either partly completed the exercise or have both previous and new systems running in parallel. AMC has only just begun to engage this exercise. GOG needs to reinforce efforts to complete this exercise so that municipalities gain the planned managerial and financial benefits as soon as possible. 18. Municipal Governance: A larger degree of both autonomy and accountability is required for the municipalities to enable them to be responsive to the needs of their clientele and constituencies. Other than Ahmedabad, the larger towns still need (in practice) to be empowered more widely across the municipal functions and operations covered by the 74th Constitutional Amendment, and should be given more revenue-raising responsibilities and latitude to discharge these, if genuine municipal reforms and development are to take place. 19. Implementation Capacity: At least until 1993/94, the performance of the implementing agencies in this Project (particularly AMC), demonstrated major weaknesses in their implementation capacity and institutional strengths, due to various reasons. Efficient utilization of revenue and of borrowed funds will continue to require significant improvement in both per- agency and coordinated GOG-based capacity at: (a) planning, development/preparation and management of municipal projects; cost-estimating, budgeting and monitoring for effective financial performance in municipal works programs, with integral provision for the cost of funds; development of comprehensive and updated schedules of rates for works that reflect realistic market prices; (b) use of standardized procurement practices, and in particular bid documents, that are tight yet are fair to both parties and provide for shared risk in procurement of works and services; (c) application of open, objective methods for bid evaluation and contract awards, to avert/reduce disputation and increase public confidence in procurement processes; timely decision-making in contract awards and greater delegation of contracts responsibilities; and (d) planning for and provision of counterpart funds for implementation of projects. 20. Prospects For A Future GUDP-II: The GOG and implementing agencies queried the mission about the possibility of Bank assistance for another Gujarat project along the lines of this GUDP. The mission in response suggested that the revised lending priorities for the Bank in India at present would go against such prospects for a large State-level multi-agency, multi- faceted, integrated urban development project. In addition, the mission suggested that urban and industrial land development schemes and tourism-development property investments, such as those now proposed inter alia by AMC, would be best directed towards the private sector. There - 44 - is clearly a need for some further investment in Gujarat's municipal-level urban infrastructure, however, and the mission suggested that this could be addressed by encouragement of in-India (state or national level) private sector 'financial intermediation' capacity for the development and financing of such investments. In parallel, the GOG should work with municipal agencies on establishing the latter as eligible credit-worthy entities in financial and investment terms. The most recent improvements in financial resources and institutional capacity across the GUDP implementing agencies (especially on the part of AMC), if firmly sustained from now on, should help significantly in such a strategy. Overall Assessment 21. The main highlights and problems evident at the closing stage of this Project are summarized below. Highlights 22. The singular achievement by GWSSB, of providing nearly 70,000 low cost sanitation units in rural areas through the use of an NGO, since the project was restructured in 1988, is highly commendable and may be the benchmark for this type of initiative in India in Bank- assisted projects. Similarly, the AMC's construction of some 16,000 toilets in Ahmedabad metropolitan areas is an impressive (albeit somewhat belated) infrastructural effort. GOG should undertake an evaluation of these two programs as a basis for future planning in this area. 23. Training in financial and administrative skills and systems has been consistently funded and conducted under the Project for various levels of staff of the participating municipalities, with apparently strong results. GOG support for this training effort should include a review of the aims and contents of the training modules to ensure they remain effective in meeting the needs of the various target staff, in the context of actual and forecast municipal functions and operations. 24. Computerization of accounting systems and the introduction of 'annual accrual' accounting methods has been embraced as a strategy by all the municipal corporations, albeit to varying degrees of implementation and operation so far. The hardware and software have been procured and the accounting process changes are being taken up gradually, initially in parallel with the existing systems. GOG should require all the corporations to expeditiously complete this program and should formally adopt the accrual accounting method as the only State-wide standard for public finances. 25. There are already major municipal cash-flow benefits evident from the application of the recent State High Court decision requiring payment beforehand by property owners of at least 75% of municipal property tax determinations where a dispute of such a determination is intended. 26. The formal strengthening of the Urban Projects Cell (UPC) in 1991 (via appointment of the Chief of the Cell) achieved solid improvement in implementation performance throughout - 45 - this Project. The enhanced capacity and contribution of the UPC in coordination and monitoring of the many project implementation aspects has been well demonstrated since then. 27. By Credit closure, on present indications, the Project's intended (post-restructuring) WS&S works should have been mostly completed and be realizing the expected benefits from these investments across several Gujarat municipalities and regions. 28. Senior staff of the respective implementing agencies are now demonstrating a more consistently strategic approach and planning orientation, and the net improvement in institutional strengths in financial and general management appears significant. Low Points 29. In the larger corporations, and particularly in the case of AMC, the implementation progress over the first half of the project's life was simply poor, for a combination of reasons. The key grounds were poor financial and procurement performance, limited adoption of the disciplines required under standardized competitive procurement processes, shortage of counterpart funds, and slow decision-making by empowered municipal areas. 30. The original project concept featured various ambitious 'urban development' components (in slum clearance, urban land re-development and town planning, for example), where the necessary prior technical capacity and administrative experience on the GOG's part actually did not exist. Project-finded technical assistance for capacity building and institutional development in these vital respects was, however, only scheduled for provision after these components had already been engaged. The significant implementation setbacks in these components led to their downsizing or even abandonment in the Project's 1988/89 restructuring. 31. The lack of strong unifying commitment and participation by GOG earlier in the Project weakened implementation performance until the UPC became effective in 1989/90. This was a factor in the need for (at least two of the four) Project extensions and directly affected the poor performance in particular in the management of procurement under the Project. 32. Compliance with covenants has until recently been consistently delayed, and particularly so in relation to auditing of project accounts for all the implementing agencies and the resultant conveyance to the Bank of certification of audit compliance or otherwise. 33. Even allowing for the acknowledged particular progress within the AMC recently, overall the evidence of the development of significant planning capacity, of depth in management skills and of modem financial management acumen suggests that this is still a vulnerable area among the individual municipal corporations. This is a particular concern as the demands on their financial and human resources, management capabilities and capacity for municipal leadership are growing. - 46 - Implementation Completion Reporting (ICR) 34. ICR Preparations/Approach: The GOG was advised by the October 1994 mission of the ICR phase and its requirements, and provided with copies of the Bank's guidelines for the ICR process. However, due to the combined effects of the recent State elections in Gujarat, the subsequent change of State government and the 'end of financial year' workload impinging on GOG over February/March 1995, by the mission's visit the relevant GOG areas had not commenced on their aspects of the ICR process. In particular, no Operational Plans (at either agency or overall Project level) were available for the mission's consideration. 35. The mission therefore held further discussions about the ICR process with the UPC and some staff of GUDP implementing agencies, particularly emphasizing the required Borrower's contributions. These include the need for each GUDP implementing agency to prepare an Operational Plan for the major components of the Project under their control, along with an individual evaluation report. Additional copies of the Bank's ICR guidelines were provided to these officials. Examples of recent typical Operational Plans were also provided and discussed, particularly with the UPC staff, who will marshall the overall GOG efforts in this regard. 36. The UPC has undertaken to compile and integrate the various resultant Operational Plans and evaluation reports, for high-level GOG review and then forwarding to the Bank for inclusion in the draft ICR materials. The mission agreed that Mr. Bhavanishankar will provide direct assistance on the Bank's behalf to GOG and implementing agencies during these efforts at various intervals over the March/April/May 1995 period. In the circumstances, the Bank's draft ICR material should be available for GOG consideration by mid-June, 1995 and the GOG's "borrower's evaluation" report should be forwarded to the Bank by June 30, 1995. 37. Overall ICR Timetable: The proposed timetable for the respective ICR milestones, taking into account the GOG's lack of prior ICR preparations, is (realistically) as follows: * Operational Plans (OP) and evaluation summaries from individual GUDP implementing agencies to UPC (GOG):- April 30, 1995 * Compilation/integration of these by UPC and GOG high-level review, then forwarding to the Bank:- May 12, 1995 * Final/revised project financial and economic data required from GOG and implementing agencies, forwarded to the Bank:- May 26, 1995 * The Bank's draft of the ICR Evaluation Summary forwarded to the GOG for the Borrower's comments:- June 23, 1995 + The GOG's own Evaluation Report on GUDP implementation, project performance and 'sustainability' aspects are forwarded (with brief summary, if necessary) to the Bank, together with any GOG comments on the Bank's ICR draft:- July 15, 1995 + Final draft overall ICR is finalized by the Bank for internal circulation and review:- July 31, 1995 * After any subsequently-necessary revisions, the ICR is printed and circulated to the Bank's Board, the Bank's OED, the Borrower, all implementing agencies and GOI coordination/oversighting agencies:- August 22, 1995 - 47 - Attachment 1 INDIA GUJARAT URBAN DEVELOPMENT PROJECT (CREDIT 1643-IN) FINAL SUPERVISION MISSION 14-16 MARCH 1995 LIST OF PRINCIPAL OFFICIALS MET Government of Gujarat Mr. V. V. Rama Subba Rao Additional Chief Secretary & Secretary, Urban Development & Urban Housing Department Mr. R. M. Patel Secretary, Water Supply Department Mr. C. J. Thakkar, Executive Engineer Urban Projects Cell, Urban Development & Urban Housing Department Mr. K. S. Varma Municipal Commissioner, Ahmedabad Municipal Corporation (AMC) Mr P. U. Asnani, Deputy Municipal Commissioner, AMC Gujarat Water Supply & Sewerage Board Mr. P. M. Modha, Member/Secretary, GWSSB Mr. H. D. Nagrecha, Chief Engineer (World Bank Zone), GWSSB Mr. P.K. Shah, Officer on Special Duty (World Bank Zone), GWSSB Mr. B. J. Vasavada, Executive Engineer, GWSSB Mr. H.H. Pandya, Executive Engineer (World Bank Zone) Mr. J. M. Barot, Director, Gujarat Jalseva Training Institute - 48 - Attachment 2 Projected & Actual Expenditure Per Participating Agency of GUDP (Rs. in Crores) Base Cost (Projected) Actual Expenditure Agency Original Restructured Revised As on Expected Residual 1985 1989 1995 2/28/95 at 3/31/95 at 3/31/95 1. Urban Components AMC 80.77 41.97 62.98 36.31 25.00 1.67 SMC 14.17 18.01 22.62 20.00 2.62 0.00 VMC 4.59 4.59 16.51 15.03 1.48 0.00 RMC 2.21 1.08 1.57 1.45 0.12 0.00 JMC 4.37 1.87 1.15 1.04 0.11 0.00 BMC 0.00 0.00 0.15 0.15 0.00 0.00 ANAND 0.00 2.88 4.39 4.32 0.07 0.00 GMFB 0.95 0.95 1.01 0.43 0.07 0.51 TPVD 0.28 0.65 0.75 0.56 0.04 0.15 Others 10.54 12.76 0.50 0.40 0.10 0.00 Urban 117.88 84.76 111.63 79.69 29.61 2.33 Total: 2. Rural/Regional Water Supply & Sanitation Components GWSSB 0.00 69.75 97.70 91.46 Overall 117.88 154.51 209.33 171.15 29.61 2.33 Total: AMC = Ahmedabad Municipal Corporation JMC = Jamnagar Municipal Corporation SMC = Surat Municipal Corporation BMC = BhavnagarMunicipal Corporation VMC = Vadodara Municipal Corporation ANAND = Anand Municipal Corporation RMC = Rajkot Municipal Corporation GMFB = Gujarat Municipal Finance Board TPVD = Town Planning & Valuation Department GWSSB = Gujarat Water Supply & Sewerage Board  ！州Aj）工邸兀 F仕〔，r:N：工604靈 T,H·f〞9