India - Madras Water Supply and Sanitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No.: 16344 IMPLEMENTATION COMPLETION REPORT INDIA MADRAS WATER SUPPLY AND SANITATION PROJECT (Loan 2846/Credit 1 822-IN) FEBRUARY 28, 1997 Agriculture and Water Operations Division Country Department II South Asia Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$ 1.00 = Rs. 12.29 at appraisal (December 1986) Rs. 1.00 = US$ 0.08137 at appraisal (December 1986) US$ 1.00 = Rs. 35.00 at closing (March 1996) Rs. 1.00 = US$ 0.02857 at closing (March 1996) WEIGHTS AND MEASURES mm - millimeter (0.04 inches) cm - centimeter (0.39 inches) m - meter (39.37 inches or 3.28 ft) km - kilometer (0.62 miles) ha - hectare (10,000 square meters or 2.47 acres) sq. km - square kilometer (0.386 square miles) I - liter (0.22 Imperial gallons or 0.264 US gallons) lcd - liters per capita per day cu. m - cubic meter (220 Imperial gallons or 264.2 US gallons) Ml - million liters or 1,000 cubic meters Mld - million liters per day (0.220 million Imperial gallons per day or 0.264 million US gallons per day) mgd - million gallons (Imperial) per day Rs. 1 lakh - Rs. 100,000 Rs. 1 crore - Rs. 10,000,000 GOI/GOTN FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS ERR - Economic Rate of Return GOTN/GTN - Government of Tamil Nadu GOI - Government of India LCS - Low Cost Sanitation MIS - Management Information System MMWSSB - Madras Metropolitan Water Supply and Sewerage Board OAP - Operational Action Plan PWD - Public Works Department TWAD - Tamil Nadu Water Supply and Drainage Board WSS - Water Supply and Sanitation WTP - Water Treatment Plant Vice President Mieko Nishimizu Director Robert Drysdale Division Chief Shawki Barghouti Staff Member Michael Whitbread  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT INDIA MADRAS WATER SUPPLY AND SANITATION PROJECT (LOAN 2846/CREDIT 1822-IN) TABLE OF CONTENTS Page No. PREFACE ..............................................................i EVALUATION SUMMARY ............................................................. ii PART I: PROJECT IMPLEMENTATION ASSESSMENT . .............................................................1 A. Project Objectives .............................................................I B. Achievement of Project Objectives ..............................................................2 C. Implementation Record and Major Factors Affecting the Project ......................................................3 D. Project Sustainability ..............................................................5 E. Bank Performnance ..............................................................5 F. Borrower Performance ..............................................................7 G. Assessment of Outcome .............................................................8 H. Future Operations ..............................................................8 I. Key Lessons Learned ..............................................................9 PART II: STATISTICAL TABLES ............................................................. 10 Table 1: Summary of Assessments ...................................................... 10 Table 2: Related Bank Loans/Credits ...................................................... 12 Table 3: Project Timetable ...................................................... 14 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual ............................................... 14 Table 5: Key Indicators for Project Implementation ...................................................... 15 Table 6: Key Indicators for Project Operation ...................................................... 15 Table 7: Studies Included in Project ...................................................... 16 Table 8A: Project Costs .......................... 17 Table 8B: Project Financing .......................... 17 Table 9: Economic Costs and Benefits .......................... 18 Table 10: Status of Legal Covenants .......................... 19 Table 11: Compliance with Operational Manual Statements ................... ............................ 20 Table 12: Bank Resources: Staff Inputs ............................................... 20 Table 13: Bank Resources: Missions ............................................... 21 APPENDIX A - Completion Mission's Aide-Memoire ............................................... 23 APPENDIX B - Borrower's Evaluation ............................................... 40 MAPS: IBRD Nos. 19905, 19906, 19907 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  i IMPLEMENTATION COMPLETION REPORT INDIA MADRAS WATER SUPPLY AND SANITATION PROJECT (LOAN 2846/CREDIT 1822-IN) Preface This is the Implementation Completion Report (ICR) for the Madras Water Supply and Sanitation Project in India, for which the Loan 2846-IN and the Credit 1822-IN, in the amount of US$53.0 million equivalent and SDR12.5 million respectively, totaling US$69.0 million equivalent, were approved on June 17, 1987 and made effective on March 17, 1988. The Credit was fully disbursed on April 16, 1991. The Loan was closed on March 31, 1996. There was one extension from the original closing date of December 31, 1995. Final disbursement took place on August 19, 1996 at which time a balance of US$4.7 million equivalent was canceled. The ICR was prepared by Mr. Michael Whitbread of the Bank's Agriculture and Water Operations Division, Country Department 2, South Asia Region. The ICR was reviewed by Mr. Shawki Barghouti, Chief, Agriculture and Water Operations Division, Country Department 2, South Asia Region, and Ms. Kazuko Uchimura, Project Adviser, Country Department 2, South Asia Region. The preparation of this ICR began during the Bank's completion mission in May 1996. It is based on mission findings and material from project files. The Borrower contributed to the ICR by providing data and views on the project outcome and an independent evaluation, which is included as Appendix B.  ii IMPLEMENTATION COMPLETION REPORT INDIA MADRAS WATER SUPPLY AND SANITATION PROJECT (LOAN 2846/CREDIT 1822-IN) Evaluation Summary Introduction 1. The Madras Water Supply and Sanitation Project' was the first Bank-supported urban water supply and sanitation (WSS) project in Madras, the capital city of the State of Tamil Nadu. A similar project had been appraised in 1979 but was not negotiated. There had been an earlier Tamil Nadu Water Supply and Sanitation Project which had urban WSS components covering three cities in the State, but these did not include Madras. In India there had been eight operations in the sector in the decade prior to Board approval on June 17, 1987. There have been six following WSS operations in India, including the Second Madras Water Supply Project (Ln.3907-0/6 IN) which was approved by the Board on June 20, 1995. A Third Project for Madras is under preparation. Project Objectives and Description 2. The project objectives were to expand the WSS facilities for the city of Madras and fturther strengthen the capacity for: (a) public water policy formulation; (b) implementation capability and financial and operational performance of MMWSSB; and (c) the introduction of a pilot low cost sanitation (LCS) program in the Madras Metropolitan Area. Project objectives (a) and (b) were appropriate to, and consistent with, the long-term aim of the Government of Tamil Nadu (GTN) to modernize and increase the effectiveness of the Madras Metropolitan Water Supply and Sanitation Board (MMWSSB), a public utility which was established by statute in 1978. Madras had, at the time of identification, the lowest water supply service of any metropolitan city in India. Objective (c) was also appropriate since provision of latrines for households without them and demonstration of the use of LCS methods is highly desirable in Indian cities. 3. Project WSS physical components included: development of modest new ground-water sources located close to the city intended to increase supplies by 35 percent, and the reliability of supply; selective improvements and expansion to the distribution system for water in Madras; and improvements to waste water collection and disposal. The LCS physical component consisted of a trial of LCS alternatives, to be followed by implementation of a pilot exercise The official name of the city changed during September 1996, after closing, from Madras to Chennai. The former name has been used throughout this report.  involving 4,000 units. Institutional improvements were proposed over a wide range of policy, management and, mainly, financial areas including: innovative ground-water legislation; improved policy formulation; extensive master plan up-dates; tariff reform; improvements to billings and collections procedures; installation of an MIS and performance-based budgeting; computerization; training; and, a program of contracting-out important functions to the private sector. Implementation Experience and Results 4. The total project cost was Rs 2271 million (US$91.3 million). This compares with the appraisal estimates of Rs 1508 million (US$112.2 million). Differences are explained largely by Rupee inflation and its devaluation against major currencies. At appraisal it was expected that the Bank would finance 61.5 percent of total project cost with most of the balance being financed by internal cash generation by MMWSSB, and a small percentage by loans from GTN. Actual financing by the Bank was 71.2 percent, an increase due mainly to revised disbursement percentages introduced by the Bank during 1991. There were lower levels of internal cash generation by MMWSSB than were estimated at appraisal. 5. Some of the earlier, 1979, project preparation provided input into this project. Additionally, extensive background and feasibility studies had been completed by UNDP/WHO prior to identification. The scope and structure of the identified project were consistent with the Government's objective of improving the delivery of WSS services in Madras. Identification was satisfactory. 6. One year separated identification and appraisal and there were only two full Bank missions, including the identification mission, prior to appraisal. The level of Bank input in assisting a first-time Borrower was lower than is normal. As a result, appraisal was premature, as was borne out by the subsequent slow implementation progress with water distribution and sewerage in the early years, although the relatively straightforward groundwater source works were implemented promptly. The Borrower's detailed engineering preparation for water distribution and sewerage fell short of what was necessary for a smooth and rapid start. 7. The implementation of the project has been rated as 'satisfactory'. The following paragraphs identify some of the limitations of the implementation processes. 8. Physical - WSS. The project failed to take off properly and progress only became satisfactory, with lapses, after about 1992. A sequence of major droughts adversely affected performance as management attention was diverted to dealing with the crisis. Apart from the droughts, the main factors affecting performance were: the inadequate level of preparation of the physical works of the project by appraisal; limited in-house engineering design capability at MMWSSB coupled with unwillingness to use consultants, for example, for sewage pumping 2 In this ICR the term 'Borrower' refers to either or both of the joint beneficiaries of the Loan/Credit, GTN and MMWSSB, depending on the context. 'Borrower' does not refer in this report to the Government of India.  iv station design work; and, unacceptably slow procurement procedures, made worse by many small contracts. Some items appraised were later dropped and others added during implementation. The main works dropped, not started or remaining substantially incomplete at closure were: the clearwater pumping station, pumps and other works at the Redhills Water Treatment Plant; rehabilitation of 16 sewage pumping stations; the A-K link canal which was no longer required as the Krishna canal served the same purpose; the Redhills to Kilpauk additional transfer facility, which was dropped due to revisions to the alignments of the distribution system; checkdam construction which ran into technical difficulties; and, trunk main strengthening. 9. Additional studies and works that were completed were: leakage study for an additional 10 percent of the area (raising coverage from 10 to 20 percent); revisions to the Master Plan; preparation of the Second Project; some additional rehabilitation and extensions to the distribution network; extra capacity at the Redhills WTP; and, additional improvements to the sewer system. About one additional year would have been required beyond the original closing date to finish the approved works and studies. The Bank granted only a three months extension to enable the transition to be made to the Second Project but agreed, in principle, that unfinished works and studies could be included in the Second Project. 10. MMWSSB chose not give priority to the preparation of a comprehensive plan for water conservation including a metering program, leak detection and repair work. The Bank adopted the position that no follow-on project would be appraised until these important issues had been properly dealt with. Preparation of the conservation strategy was accomplished by February 1995 and implementation of the strategy is covenanted in the Second Project. 11. Physical - LCS. MMWSSB completed the LCS trial but did not take up the challenge of implementation of 4,000 individual latrines, arguing that LCS solutions are not appropriate to the conditions. This position was unacceptable as far as the provision of latrines is concerned. Also, it is inconsistent with the widespread and successful LCS experiments elsewhere in India. Public conveniences, numbering 58, were provided in different parts of the metropolitan region. 12. Institutional. Groundwater legislation was passed promptly. Improvements in the policy-making, management and finances of MMWSSB took some time to commence and proceeded slowly during the middle years of the project. For example: the workforce continued to climb from the time of effectiveness to the peak in 1990 before stabilizing and then declining; internal cash generation fell short of agreed targets between FY90 and FY94 before improving substantially in FY95; audit reports were late until FY92; and, procurement for the master plan update was delayed 18 months with no apparent justification. However, by closing all the tasks related to institutional strengthening contained in the OAP were completed. Procurement remained problematic, with excessively slow procedures throughout the project. MMWSSB's procurement delegations from GTN were removed which meant that all decisions were taken by Government, adding greatly to time taken and the scope for interference.  v Summary of Findings, Future Operations and Key Lessons Learned 13. Project objectives relating to WSS physical components fell short of full achievement at time of closing since agreed works and studies were not all finished, despite a project period for implementation of 8 years. The LCS objective was achieved only to a very limited extent as the trial study of LCS needs, technical options and institutional requirements was completed and evaluated, but there was no follow-up action to implement LCS units, other than the public conveniences. The project's institutional objectives relating to policy, management and finance were achieved by closing as all the actions in the Operational Action Plan (OAP) were completed. Particularly important were the improvements in cost recovery, groundwater legislation and the conjunctive use of water. However, these achievements were marred by slow progress in important areas as such as timely submission of audits, control over staff costs and performance against targets for internal cash generation. Procurement delays plagued the project. 14. MMWSSB commenced a program of contracting out important operations to the private sector. Generally this approach to privatization has worked well and, following the positive experience, is to be expanded. The Bank fully supported these initiatives. 15. The Project improvements constitute the first phase of implementation of the WSS master plan for Madras which is now being carried forward in the follow-on Second Project. The institutional strengthening which was accomplished in the Project is expected to lead to progressive and permanent improvements in MMWSSB's efficiency and performance. There remain great challenges ahead to take forward the preliminary improvements and make them sustainable. 16. The main findings and lessons for further projects are as follows: Identification, Preparation and Appraisal (a) where the Borrower is reluctant to undertake policy reform in certain key areas, as with water conservation measures, it is appropriate for the Bank to seek some actions early on, preferably prior to appraisal; (b) in accordance with current Bank practice, this project should have been appraised only when fully prepared in terms of technical studies, engineering design, procurement procedures and implementation plan to enable implementation to proceed in eamest immediately following effectiveness; (c) as agreed delegations of authority to the implementing agency for procurement were later unilaterally withdrawn by GOTN they should have been backed by covenants to ensure they remained in place;  vi Implementation (d) the Bank should have provided above-average levels of supervision support to a first-time Borrower in the first few years of implementation to facilitate the process of learning about procedures and methods. The high turnover of Bank Task Managers (6 in the 9 years from identification to closing) hampered continuity and probably reduced the Bank's effectiveness; (e) the 8 years of implementation from effectiveness to closing, as planned at appraisal, was possibly responsible for the development of a somewhat relaxed approach to preparation and implementation activities, and a shorter period might have engendered a greater sense of Borrower urgency; (f) an implementation plan should have been prepared with performance indicators and regular reporting against which implementation progress could have been assessed by Bank and Borrower; and, (g) the considerable institutional and policy strengthening achievements in the areas of conjunctive use of water, groundwater legislation and, especially, cost recovery reflected the attention given to these issues by the Bank throughout the project cycle.  IMPLEMENTATION COMPLETION REPORT INDIA MADRAS WATER SUPPLY AND SANITATION PROJECT (LOAN 2846/CREDIT 1822-IN) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. Project Objectives 1. The project objectives were to expand the WSS facilities for the city of Madras and further strengthen the capacity for: (a) public water policy fonnulation; (b) implementation capability and financial and operational performance of MMWSSB; and (c) the introduction of a pilot low cost sanitation (LCS) program in the Madras Metropolitan Area. Project objectives (a) and (b) were appropriate to, and consistent with, the long-term aim of the Government of Tamil Nadu (GTN) to modernize and increase the effectiveness of the Madras Metropolitan Water Supply and Sanitation Board (MMWSSB), a public utility which was established by statute in 1978. Objective (c) was also appropriate since provision of latrines and demonstration of the use of LCS methods is highly desirable in Indian cities. 2. Project WSS physical components included: development of modest new ground-water sources located close to the city intended to increase supplies by 35 percent, and the reliability of supply; selective improvements and expansion to the distribution system for water in Madras; and improvements to waste water collection and disposal. The LCS physical component consisted of a trial of LCS alternatives, to be followed by implementation of a pilot exercise involving 4,000 units. Institutional improvements were proposed over a wide range of policy, management and, mainly, financial areas including: innovative ground-water legislation; improved policy formulation; extensive master plan up-dates; tariff reform; improvements to billings and collections procedures; installation of an MIS and performance-based budgeting; computerization; training; and, a program of contracting-out important functions to the private sector. 3. This was the first WSS project in the city of Madras supported by the Bank, and was the first injection of significant sector investment funds in the city for several decades. At identification the city had the lowest water supply service levels of the metropolitan cities in India. (The Bank's sanitary engineer working on the project at the time reported that he had, "...never seen such a water-short city."). The project supported a major update of the 1978 WSS master plan for the city and the first phase of its investments. The development of new water sources consisted of modest groundwater schemes close to the city to be used conjunctively with the existing surface water sources. The project was not unduly risky or complex and 8 years for implementation were ample to complete the tasks.  -2- B. Achievement of Project Objectives 4. Physical objectives - WSS. During implementation some of the studies and works which were included at appraisal were dropped and others added, in agreement with the Bank. However, not all the agreed physical components for WSS were finished and, accordingly, some project objectives were not fully achieved. About one additional year of implementation would have been required to complete the agreed works and studies. MMWSSB and GTN, through the Government of India (GOI), requested an extension of one year which was refused by the Bank. A three-month extension was granted with agreement, in principle, to include in the follow-on Second Madras Water Supply Project (Ln.3907-0/6 IN) the unfinished items from the First Project. 5. The works and studies not completed are listed in full in the Completion Mission's Aide- Memoire (see Appendix A, Annex 1). The main works dropped, not started or remaining substantially incomplete at closure were: the clearwater pumping station, pumps and other works at the Redhills Water Treatment Plant; the A-K link canal which was no longer required as the impending Krishna canal served the same purpose; the Redhills to Kilpauk additional transfer facility, which was dropped due to revisions to the alignments of the distribution system; rehabilitation of 16 sewage pumping stations; construction of two checkdams (a third checkdam was not finished); and, trunk main strengthening. 6. Additional studies and works that were completed were: leakage reduction for an additional 10 percent of the area (raising coverage from 10 to 20 percent); revisions to the Master Plan; preparation of the Second Project; some additional rehabilitation and extension to the distribution network; extra capacity at the Redhills WTP; and, additional improvements to the sewer system. Works to augment groundwater supplies to the city were completed but the outputs fell short of expectations due to over-optimistic projections of the capacity of the groundwater. 7. Physical objectives - LCS. The LCS project objective was not achieved. MMWSSB successfully carried out a trial study of LCS needs, technical options and institutional requirements, as was required, and an evaluation was undertaken (see Appendix A for details). This trial was intended to precede an LCS program in the Madras Metropolitan Area involving an initial 4,000 units. However, following the evaluation of the trial, MMWSSB decided not proceed to implement the 4,000 units. Public conveniences were constructed by local at 58 locations in the metropolitan region. 8. Institutional objectives. The following were the main institutional elements of the OAP on which MMWSSB took action: a tariff study and tariff reforms; billings and collections improvements; installation of an MIS; introduction of performance-based budgeting; extensive computerization; training, including the provision of a new training center; and, improvements to the planning and execution of operations and maintenance functions. All these actions were achieved by closing, although the progress was sometimes slow. High degree of Borrower  -3 - ownership for the financial reforms and improvements was engendered during preparation, with working teams established to sort out the most appropriate ways forward. This commitment was maintained during implementation. Innovative groundwater legislation was implemented by GTN3. This legislation covers all of the city and adjacent aquifers and provides for the licensing of ground water extractors, enforcement of permitted flows linked to a system of checking, and close monitoring of ground water levels. 9. There was slow progress with institutional reforms, as illustrated by the following examples, although improvements were completed by closing: (a) in the middle years, from FY90 to FY94, internal cash generation at MMWSSB fell short of agreed targets although, following the tariff revision on April 1, 1994, the targets were greatly exceeded in FY95 as internal cash generation was Rs 298 million (US$8.5 million) against the appraisal target of Rs 134 million (US$3.8 million); (b) the project has assisted MMWSSB to substantially up-date its WSS master plan and introduce planning and policy formulation capacity in the agency, although the procurement process for the appointment of consultants took 18 months to complete; and (c) workforce levels continued to rise until 1990 when they stabilized - thereafter, they declined substantially. 10. MMWSSB has commenced and expanded a program of private participation through contracting out important functions including operations at 60 percent of the sewerage pumping stations, one of its sewage treatment plants and the new Redhills Water Treatment Plant. This experience has been positive and the privatization program is to be expanded in the future. 11. Procurement was one area of substantial institutional weakness and poor performance. Generally procedures were excessively slow and inefficient. Problems were made worse by low delegations from GTN to MMWSSB for procurement decisions which meant time-consuming referrals to GTN for many decisions which were not especially significant. During the course of the project these delegations were removed altogether by GTN resulting in all decisions being referred by MMWSSB to GTN, thereby adding to delays and the scope for interference. 12. An economic rate of return (ERR) was estimated for the project at appraisal to be 8 percent. Using the actual project costs and benefits measured in the same way as in the original methodology, the calculated ERR was 12 percent (see Table 9 for details; the notes to Table 9 provide a short commentarv on the methodology used). C. Implementation Record and Major Factors Affecting the Project 13. Implementation of policy and institutional strengthening measures mostly proceeded smoothly although with some delay. Procurement was the exception, for which performance was poor until the concluding stages of implementation. Financial strengthening and cost recovery was particularly successful. Other noteworthy achievements were the policy of conjunctive use of water, and the introduction of groundwater legislation. This good performance reflects 3 The Madras Metropolitan Area Groundwater (Regulation) Act, 1987.  -4 - MMWSSB's readiness for reform. The main concern with project implementation was the very slow progress, particularly with physical works and some key technical studies. Possible explanations follow. 14. Factors not subject to GTN/MMWSSB control. In several years throughout the project period the Madras region was subject to severe droughts. These caused great distraction for MMWSSB management and tied up engineering and other technical skills and resources to deal with the deepening crisis. The engineers were diverted from the preparation and supervision of the project's long-term studies and investments towards solving the short-term problems of obtaining more water for the city (which was secured partly by transportation from great distances by train and ship), and its equitable distribution in the city. The droughts undoubtedly played a part in the delays in preparation and procurement of project works. Additionally, the droughts caused Government to consider the development of a new source for Madras using water from the Veeranam irrigation tank some 235 km. to the south. Between 1993 and 1995 this Veeranam concept was developed into the Second Project. As a consequence of the decision to proceed with this new source of supply, redesign of the water distribution master plan for the city was needed which also caused implementation delay. Additionally, there were project design changes due to the evolving development of a new Krishna River source of water, to the north. 15. Factors subject to GTN/MMWSSB control. Apart from the delays attributable to the drought and its consequences, there was slow progress in the preparation and procurement of works and technical studies. For example, an 18 month delay occurred in the consultants' contract award for the master plan update in 1991 which had further delay implications for downstream scheme designs and contracts for works. Another example was the 12 months delay in contract award for works at Redhills Water Treatment Plant. Low delegation levels from GTN to MMWSSB for procurement decisions, already noted above, were partly to blame. There was a reluctance to employ consultants even when in-house capacity was clearly inadequate, as with the design of sewage pumping stations. There were many small contracts which added to the administrative burdens. And, project management skills in MMWSSB were weak. 16. Delays were not caused by many of the factors which are often found in Bank-supported projects in India, such as unrealistic Borrower expectations at the time of appraisal, the unavailability of counterpart funds, and project complexity, riskiness and size. Nor were there difficulties with land acquisition. However, lack of continuity of senior staff at MMWSSB was noted by supervision missions as a possible problem causing delays in the early stages, later rectified. 17. Inadequate allowance was made for the time needed for the new Borrower to become familiar with Bank procedures and there was no additional Bank supervision effort in the early stages to accomplish greater Borrower awareness. Around 1992 revised implementation schedules were worked out and the implementation progress significantly improved. Had the rate of progress in the latter stages of implementation been evident from, say, the second project year, the project would have been completed within the original project period.  -5- D. Project Sustainability 18. The institutional improvements, particularly in finance, are expected to lead to progressive and permanent improvements in MMWSSB's efficiency and performance. It is evident that the Project has provided a sound foundation for the institution to develop and grow. Nevertheless, there are many areas of institutional improvement which need to be taken further to continue the process of modernization of MMWSSB, and there will be many challenges ahead. Follow-on project activities provide some assurance that the investments already undertaken will be utilized and that the project benefits will be realized. 19. An important factor in the assessment of sustainability, however, is that future operations of MMWSSB will depend greatly on the provision of new water supply to the city. The Second Project was intended to bring additional supplies from the Veeranam tank but in late 1996 GTN unexpectedly decided not to proceed with the Veeranam pipeline and the equivalent Loan amount was canceled by the Borrower. Another much larger new water source is the Krishna River to the north which in 1996 started to flow to the city. The Krishna canal has been developed using funds from the GTN State budget. The arrival of Krishna water provides some assurance that the Project investments for water distribution and sewerage will be fully utilized, but this depends, of course, on the continuing reliability of this source. 20. On balance, and having regard to the arrival of new source of water, the project's sustainability has been rated as 'likely'. Positive factors in the assessment include a high level of Borrower commitment, an encouraging policy environment, and the greatly improved effectiveness of the institution and its financial viability. E. Bank Performance 21. Identification. The structure of the project was consistent with the Government's objective of greatly improving the delivery of WSS services in the State capital city. Moreover, there had been extensive studies for the earlier 1979 project, and by UNDP/WHO which provided a technical underpinning for the project proposals. The identification of the project by the Bank was satisfactory and appropriate. 22. Preparation. There were only two full preparation missions in November 1985 and June 1986, and a small mission to check on progress in May 1986 (Table 13). The first of these preparation missions doubled as the identification mission. Between Identification and Board there were 82 staff-weeks utilized against a typical amount of 120 to 140 staff-weeks for a project of this type. Judged against contemporary practices, this level of Bank input in assisting this first-time Borrower was low. Lack of readiness was the cause of the very slow progress with implementation of the water distribution and sewerage works in the years following effectiveness, although the groundwater source works did proceed quickly. During preparation the Borrower was considering development of costly new sources of supply located outside the city catchment area. The Bank played an important role in convincing MMWSSB/GTN of the cost savings of proceeding with the development of groundwater which would be used conjunctively with existing surface water sources.  -6 - 23. Task Management responsibilities for preparation and most of implementation period were assigned to financial analysts and institutional specialists. Preparation involved establishing working groups on financial and institutional problems and solutions. This focus created a strong sense of Borrower ownership and may explain the generally strong performance during implementation by GTN/MMWSSB in the areas of policy and financial reform. 24. Appraisal. Appraisal took place in December 1986, about one year after identification. A full complement of Bank staff and consultants' skills were represented on the appraisal mission. There were two special conditions of appraisal: action on tariffs; and, agreement to the enactment of groundwater legislation. The appraisal was thorough in assessing the financial, legislative, commercial and institutional aspects of the project, which moved forward successfully during implementation. 25. The Borrower was not as ready to move forward with technical and engineering aspects of the project. Evidence of readiness might have included finalization of some bid evaluations and awards prior to negotiations, or effectiveness, as is current practice in Bank-supported projects. It was not the Bank's practice at that time to insist on such a level of readiness. Insufficient attention was given also to the inefficient and time-consuming nature of the decision- taking process for procurement within GTN/MMWSSB, and during implementation major procurement delays occurred. Overall, the Bank's performance at appraisal has been rated as 'deficient'. 26. Supervision. Overall supervision missions took place with appropriate frequency and commitment of resources, but proportionately greater Bank effort in the first few years would have been beneficial to the Borrower. The two key skills of financial analysis and sanitary engineering were, with one exception, always represented. These core skills were supplemented from time to time with other relevant skills (see Table 13). Task Management responsibilities changed 6 times during preparation and implementation. This turnover of Task Managers probably reduced the Bank's effectiveness. In the early stages the reports of supervision missions and Form 590s expressed increasing concern over the slow disbursements and poor implementation, particularly of works and technical studies, but appeared to be unable to focus on the principal causes of these problems of delay, nor rectify them. Not until later, around 1992, did progress pick up to a generally satisfactory level, although with lapses thereafter. The Bank maintained pressure on the Borrower to reduce staffing levels and revise tariffs, with some success. The supervision performance by the Bank has been rated as 'satisfactory'. 27. The mid-term review in May 1994 was too late to be effective as over 75 percent of the available implementation time had passed. The Form 590 ratings for implementation status were always satisfactory. This rating appears to overstate the performance in the early years. Development impact was sometimes rated highly satisfactory, which seems too high to be consistent with the slow progress being made in the early years with the technical aspects of the project, although still consistent with the financial and institutional reforms which were being achieved. A return to a satisfactory rating for development impact after July 1993 seems to be a more balanced assessment of the actual performance.  -7- 28. All covenants were in compliance at closing, but some were complied with late during implemenitation. Submissions of audits in the early years were late but slowly this aspect improved. There were early short-falls in the cash generation against the covenanted targets but the substantial tariff increase on April 1, 1994 enabled MMWSSB to greatly exceed the cash generation target by closing. GTN provided appropriate levels of counterpart funding, but before FY92, passed on the loan/credit proceeds to MMWSSB as 50 percent grant and 50 percent loan. The grant element was contrary to the covenant requiring the pass-through to be on loan terms acceptable to the Bank. However, the Bank was active in seeking covenant compliance when performance fell short. F. Borrower performance 29. Preparation. GTN/MMWSSB had properly prepared the broad conceptual structure of the project and extensive studies by UNDP/WHO on which the project was based had been completed in 1985. However, there was comparatively limited detailed engineering design preparation work for water distribution and sewerage which mainly explained the slow project start following effectiveness. MMWSSB was not willing to employ consultants, for example, for sewage pumping station design, despite limited in-house capability. It is possible that there was a reluctance by GTN to allocate sufficient funds for preparation ahead of the certainty that the project would be financed by the Bank. 30. Implementation. Progress with the preparation and procurement of technical studies and works was very slow throughout the project, other than its concluding stages. Ultimately these delays resulted in the failure to complete the project within the time allotted. Much needs to be done by management at MMWSSB to streamline procedures and by GTN to delegate to MMWSSB greater authority in decision taking. 31. The implementation of policy and institutional improvements at MMWSSB was slow initially but all the relevant elements of the OAP were completed within the project period. Mainly for this reason, the overall implementation performance has been rated as 'satisfactory' despite the tardy procurement of works and technical studies. 32. MMWSSB took two years from effectiveness to commence the stabilization and subsequent reduction of the workforce although by the close of the project the numbers (consisting of field workers and staff combined) had fallen by 20 percent from the peak of 7,610 in 1990 to 6,317 in 1996.4 4 MMWSSB remains overstaffed. For example, the ratio of salaries and wages to total operating costs (which excludes depreciation and interest) is about 57%. This compares with less than 40% which is typical for industrialized countries' water utilities, despite their much higher unit labor costs.  -8 - 33. MMWSSB proved to be an unwilling agency for the implementation of the LCS component. No effort was given to LCS implementation following the completion of the LCS trial and its evaluation, apart from provision of public conveniences. 34. All covenants and other commitments were complied with by closing. 35. Progress reporting was limited to notes prepared for the supervision missions. This is not frequent enough. As an MIS had been implemented during the project the absence of regular reporting to the Bank was not a reflection of inadequate data availability. In the Second Project, agreement has been reached to improve on reporting by providing monitoring reports on a quarterly basis. G. Assessment of Outcome 36. The outcome of the project has been rated as 'satisfactory'. By completion, most of the physical components for WSS had been implemented. Items remaining unfinished are proposed to be financed under the Second Project. All the agreed institutional strengthening improvements contained in the OAP were implemented. The project has made a worthwhile improvement in WSS services in Madras city and has provided the foundation for the next phases of implementation of the WSS master plan. The calculated ERR for the project of 12 percent exceeded the appraisal estimate of 8 percent. 37. The LCS objectives were not achieved. Although trials were undertaken and properly evaluated, MMWSSB decided not to proceed to implement the proposed 4,000 LCS units. H. Future Operations 38. The Project provided support for the first phase of the WSS master plan implementation. Shortly before completion, the Second Project was made effective and some components of this project will become the second phase of the master plan. It is anticipated that operations at MMWSSB will continue to improve, assisted by the inputs of the Bank with follow-on activities. 39. Some of the works under the project have been in operation for some time, including source works such as tubewells, checkdams and river linkages, and elements of the distribution system. For these facilities, operational arrangements are in place and are satisfactory. Injection wells for the control of saline intrusion are operational. There have been several years worth of monitoring of saline intrusions to determine the quality of the aquifer which confirms that the wells are operating successfully. 40. Operational indicators are to be generated for MMWSSB as a whole and are being agreed with the Bank for use in the Second Project. 41. MMWSSB's search for performance improvement and efficiency continues. For example, there is continuing downward pressure on staff numbers, and an annual tariff review.  - 9- 42. MMWSSB commenced a program of contracting out important operations to the private sector. Generally, this has worked well and following the positive experience is to be expanded. I. Key Lessons Learned 43. During preparation: (a) where the Borrower is reluctant to undertake policy reform in certain key areas, as with water conservation measures, it is appropriate for the Bank to seek some actions early on, preferably prior to appraisal; (b) in accordance with current Bank practice, this project should have been appraised only when fully prepared in terms of technical studies, engineering design, procurement procedures and implementation plan to enable implementation to proceed in earnest immediately following effectiveness; and, (c) as agreed delegations of authority to the implementing agency for procurement were later unilaterally withdrawn by GOTN they should have been backed by covenants to ensure they remained in place. During implementation: (d) the Bank should have provided above-average levels of supervision support to a first-time Borrower in the first few years of implementation to facilitate the process of learning about procedures and methods. The high turnover of Bank Task Managers (6 in the 9 years from identification to closing) hampered continuity and probably reduced the Bank's effectiveness; (e) the 8 years of implementation from effectiveness to closing, as planned at appraisal, was possibly responsible for the development of a somewhat relaxed approach to preparation and implementation activities, and a shorter period might have engendered a greater sense of Borrower urgency; (f) an implementation plan should have been prepared with performance indicators and regular reporting against which implementation progress could have been assessed by Bank and Borrower; and, (g) the considerable institutional and policy strengthening achievements in the areas of conjunctive use of water, groundwater legislation and, especially, cost recovery reflected the attention given to these issues by the Bank throughout the project cycle.  -10- PART H: STATISTICAL TABLES Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macro Policies W Sector Policies Financial Objectives Institutional Development Physical Objectives E [0] Poverty Reduction W Gender Issues El Other Social Objectives ] E E [7] Environmental Objectives ] E E ] Public Sector Management ] E [ ] Private Sector Development [ E E E  Table 1. Summary of Assessments (continued) B. Project Sustainability Likely Unlikely Uncertain Highly C. Bank Performance Satisfactory Satisfactory Deficient Identification Z E Preparation Assistance El [ |L Appraisal [ Z I ] Supervision m E Highly D. Borrowers Performance Satisfactory Satisfactory Deficient Preparation Implementation l E El Covenant compliance E E E Operation E El E Highly E. Assessment of Outcome Satisfactory Satisfactory Deficient El El El  - 12- Table 2: Related Bank Loans/Credits Loan/ Credit title Purpose Year of Status approval Preceding Operations 1. Second Bombay Construct: water treatment, storage and 1979 Closed Water Supply and transmission works; distribution improvements; Sewerage Project improvements to sewage collection and (Cr.842-IN) conveyance systems and treatment plant 2. Punjab Water Supply Improvements to water supply and sewerage in 8 1979 Closed and Sewerage Project towns. Supply specialist equipment and train (Cr. 848-IN) staff 3. Maharashtra Water Construct: new and rehabilitate existing water 1979 Closed Supply and Sewerage treatment plants; storage facilities; transmission Project (Cr.899-IN) and distribution works in 5 towns and villages; expand sewage collection and treatment 4. Rajasthan Water Provide water supply to villages and 4 cities; 1980 Closed Supply and Sewerage extend sewerage in 3 cities; strengthen O&M Project (Cr. 1046-IN) 5. Gujarat Water Supply Provide water supply to villages; improve and 1983 Closed and Sanitation Project extend water and sewerage systems in urban (Cr. 1280-IN) areas; provide LCS in medium sized towns; institutional improvements 6. Tamil Nadu Water Improve water supply in large urban areas and 1984 Closed Supply and Sanitation selected smaller towns and rural areas; provide Project (Cr. 1454/SF 12- LCS in urban areas; institutional strengthening IN) 7. Kerala Water Supply Strengthen institutions including fnancial 1986 Closed and Sanitation Project management; provide water supply to rural areas (Cr. 1622-IN) and upgrade and extend water distribution in one urban area; provide LCS in 10 urban and selected rural areas 8. Third Bombay Water Construct water treatment plant; storage 1987 Closed - ICR Supply and Sewerage facilities; transmission pipelines; sewers, and in preparation Project sewage pumping facilities, LCS (Cr.1750/Ln.2769-IN) Following Operations 1. Hyderabad Water Expand water supply to city; rehabilitate and 1990 Ongoing Supply and Sanitation strengthen water and sewage systems; provide Project LCS; institutional strengthening (Cr.2115/Ln.3 181-IN)  - 13 - 2. Maharashtra Rural Provide water supply and environmental 1991 Ongoing Water Supply and sanitation facilities to rural communities; health Environmental awareness programs; institutional strengthening Sanitation Project (Cr.2234-IN) 3. Karnataka Rural Provide water supply and environmental 1993 Ongoing Water Supply and sanitation facilities to rural communities; health Environmental awareness programs; institutional strengthening Sanitation Project (Cr.2483-IN) 4. Second Madras Water Provide source works, transmission and 1995 Ongoing Supply Project (Ln.3907- treatment facilities for new water supply to city; 0/6 IN) continue program of water distribution and conservation improvements, technical assistance 5. Bombay Sewage Construct 2 marine tunnel outfall sewers, and 1996 Ongoing Disposal Project sewage pumping and treatment facilities; (Cr.2764/Ln.3923-IN) rehabilitation and improvements to sewerage facilities and systems; LCS in slums 6. Uttar Pradesh Rural Support to policy reforms in State Government; 1996 Ongoing Water Supply and construct water supply and enviromnental Environmental sanitation schemes in rural areas; undertake Sanitation Project studies and awareness campaigns (Ln.4056-IN) NQI=i Table 2 shows up to 10 years of preceding operations. Year of approval is Bank fiscal year.  -14- Table 3: Project Timetable Steps in project cycle Date planned Date actual Identification Nov-85 Preparation Dec-85 Appraisal Jul-86 Dec-86 Negotiations Nov-86 05-May-87 Board presentation Jan-87 17-Jun-87 Signing 21-Dec-87 Effectiveness 17-Mar-88 Mid-term review May-94 Project completion 30-Jun-95 31-Mar-96 Credit closing 31 -Dec-95 31-Mar-96 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (USS million) FY 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Appraisal Estimate Total: 7.3 18.5 31.4 42.8 52.9 60.9 66.5 68.4 69.0 69.0 Actual Credit 3.5 7.4 12.3 16.7 16.7 16.7 16.7 16.7 16.7 16.7 Loan 0.0 0.0 0.0 6.3 14.5 20.0 28.7 35.7 35.7 48.3 Total: 3.5 7.4 12.3 23.0 31.2 36.7 45.4 52.4 52.4 65.0 Actual as Percentage of Estimate: 47.9 40.0 39.2 53.7 59.0 60.3 68.3 76.6 76.0 94.2 Effectiveness date: 17-Mar-88 Date of final disbursement: 19-Aug-96  - 15 - Table 5: Key Indicators for Project Implementation Key Implementation Indicators Estimated Actual (from SAR) 1. Internal generation of funds. Rs 134 million Rs 298 million 2. Cost of water (includes depreciation and debt service) Rs 5.40 per cu m supplied Rs 6.77 per cu m supplied 3. Quantity of water supplied 246 Mld 304 Mld 4. Collections performance (arrears and current demand combined) (a) Charges 90 72 (b) Tax 90 54 5. Number of consumer connections 163,000 179,000 Table 5 records a selection of project implementation indicators. All data are for 1994/95, which is the last year for which estimates were presented in the SAR. Table 6: Key Indicators for Project Operation L Key Operating Indicators Estimated Actual\a 1. Intemal generation of funds. 17.2% of capital investment 2. Cost of water (includes depreciation and debt service) in year 2000. Rs 10.7 per cu m 3. Quantity of water supplied in year 2000. 1400 Mld 4. Average tariff increase. 10% pa \a No key indicators of project operation were defined in the SAR, nor subsequently during implementation. However, the SAR of the Second Madras Water Supply Project, dated May 26, 1995, at Annex 5, identifies agreed monitoring indicators. While some of the Second Project indicators are project specific and relate to construction activity, water conservation measures etc., others relate to the overall operations of MMWSSB and are de facto indicators of the First Project operation. Some of these Second Project indicators are shown in Table 6. There are no "actual" data to date.  - 16- Table 7: Studies Included in Project Purpose as defined Study at appraisal Status Impact of study Reduction in Assess nature and scale Completed Program prepared - to be unaccounted-for-water of problems and prepare implemented under the Second a work program Project Water supply and Update to reflect Completed Essential basic document sewerage Master Plan modernization and underpinning all investment update impact of receiving planning and design work by Krishna and other water MMWSSB Revision to Master Revised during project Completed Necessary revision to Master Plan Plan implementation to reflect reflecting impending arrival of new decision taken post- water appraisal to bring Veeranam water to Madras in Second Project Assessment of low To assist with planning Completed Report of limited impact cost sanitation (LCS) of LCS alternatives Tariff reform To provide sound factual Completed Very useful source of information basis for water demand: for planning and evaluation quantity, sources, use purposes and affordability of water. Also to recommend tariff policy Financial management To improve quantity and Completed Essential study, providing the basis and MIS quality of financial data for financial reform and within MMWSSB modernization. Useful computer model produced and up-and- running for corporate planning purposes Operations and Studies to identify Completed Modest impact maintenance efficiency improvements consultancies and make recommendations Design for Veeranam Preparation for the Unfinished at Essential for the preparation of pipeline and related Second Project Closure additional water supplies. Work works continuing under Second Project  -17- Table 8A: Project Costs <------- Rs Million ---------> <----- US$ Million -----> Item Details Appraisal Actual Appraisal Actual Estimate Estimate I Augmentation of water supply 904.5 875.6 67.3 35.2 II lmprovements to water distribution system 212.7 451.2 15.8 18.2 III Improvements to sewerage system 246.3 692.3 18.3 27.8 IV Institutional strengthening 139.3 252.3 10.3 10.1 V Land 5.3 0.0 0.4 0.0 Total 1508.0 2271.4 112.2 91.3 Appraisal estimates are those of the First Review mission of July 1988 and include physical and price contingencies. Details of local/foreign breakdown are not available. Accordingly, totals only are shown. Institutional strengthening in this table includes engineering supervision and engineering consultancies. Table 8B: Project Financing (US$ Million) Source Appraisal Estimate Actual IDA Cr. 1822-IN 16.0 16.7 (14.3%) (18.3%) IBRD Ln.2846-IN 53.0 48.3 (47.2%) (52.9%) MMWSSB Internal Cash Generation 39.0 26.3 (34.8%) (28.8%) GTN Grant/Loans 4.2 n/a (3.0%) Total Project Cost 112.2 91.3 (100.0%) (100.0%) For Actuals, MMWSSB's internal cash generation and the grant/loan contributions from GTN are combined as the contributions of the two parts to project financing cannot be distinguished. However, it is evident that the internal cash generation was much lower than appraisal estimates, due to two factors: (a) the failure by MMWSSB to achieve its financial targets over much of the project period linked to a willingness by GTN, in the early years especially, to increase its own contributions relative to the appraisal estimates to compensate for this MMWSSB failure; and, (b) increases in the Bank disbursement percentages introduced during 1991.  - 18 - Table 9: Economic Costs and Benefits SAR Estimates Actual Year Capital Operatng Total Incremental Incremental Capital Operatng Total Incremental Incremental Costa Costs Costs Revnues Revenues Costs Costs Costa Revenues Revenues Gross Net Gross Net 1986/87 95.0 12.9 107.9 19.7 -88.2 1987/88 194.9 15.5 210.4 49.8 -160.6 62.4 20.4 82.8 0.0 -82.8 1988/89 254.4 20.5 274.9 23.1 -251.8 81.9 44.1 126.1 64.7 -61.4 1989/90 237.8 27.7 265.5 56.5 -209.0 102.6 59.3 161.8 87.4 -74.4 1990/91 148.2 26.6 174.8 62.9 -111.9 263.2 83.1 346.2 180.6 -165.7 1991/92 144.0 27.2 171.2 89.4 -81.8 213.5 110.2 323.7 195.0 -128.7 1992/93 120.0 37.2 165.4 160.8 -4.6 151.4 149.8 301.2 190.7 -110.5 1993/94 91.5 47.1 138.6 144.1 5.5 213.0 140.4 353.4 233.4 -120.0 1994/95 56.7 56.7 163.9 107.2 163.1 140.4 303.5 180.7 -122.8 1995/96 56.7 56.7 163.9 107.2 230.9 194.7 425.5 374.0 -51.6 1996/97 56.7 56.7 163.9 107.2 194.7 194.7 374.0 179.3 2027/28 56.7 56.7 163.9 107.2 194.7 194.7 374.0 179.3 2028129 194.7 194.7 374.0 179.3 ERR = 8% ERR = 12% The economic analysis of the actual project employed the same methodology as was used in the SAR (Annex 13). In brief, an economic rate of return (ERR) was calculated on the differences between project capital and entity incremental O&M costs, and incremental revenues before receipt of GTN subsidies, all expressed in constant (1986/87) prices. The project period from start of implementation was assumed the same. The start of the actual project was delayed by a year relative to appraisal. In Table 9, all annual values between 1996/97 and the terminal year are identical and for compactness of presentation are not shown for the intervening period. At 12%, the ERR for the actual project exceeded the SAR estimates of 8%. This result was obtained despite the delays in implementation and hence deferment of benefits, and higher O&M and capitl costs, all of which imply a lower than expected ERR. This anomalous result was due to the higher benefits as measured in the actual case compared with appraisal. In the SAR, the benefits were measured as the product of tariffs at the time of appraisal (projected forward at a constant real rate) and water sold. However, the substantial actual tariff increase in 1994/95, coupled with the high sales resulting from ending the drought in 1995/96, when projected forward gave much higher measured benefits than at appraisal.  -19- Table 10: Status of Legal Covenants Original Revised Covenant Present fulfillment fulfillment Description of Agreement Section type status date date Covenant Comments PROJECT 2.01 10 C MMWSSB to carry out project in OAP last updated Jan-95 AGRT. accordance with Operating Action Plan (OAP), subject to annual review and amendmnent, as necessary, by IDA and MMWSSB 3.04(b) 5 C MMWSSB to restrict recruitment In compliance to essential personnel 4.01(b) I C MMWSSB to have its accounts In compliance at Closure audited and furnish copies of the following late audit reports not later than nine submissions in early months after year end years 4.02(a) 2 C MMWSSB to take necessary In compliance at Closure measures to provide sufficient after substantial tariff internal cash generation for capital increase on 01-Apr-94. expenditures, as per the OAP There were shortfalls in some earlier years TAMIL 2.01(b) 3 C GTN to on-lined Loan/Credit In compliance at Closure. NADU proceeds under terms and GTN passed on some AGRT. conditions approved by IDA funds as grant in the early years, contrary to covenant 2.01(c) 4 C GTN to ensure funds representing After FY92 funds being not less that 64% of annual capital passed on under IDA expenditure of the project are approved terms and made available on same terms and conditions conditions as 2.01 (b) above Covenant type: Status: 1. Accounts/Audit C - Complied with 2. Financial performance/generate revenue from beneficiaries CD - Compliance after Delay 3. Flow and utilization of Project funds NC - Not Complied with 4. Counterpart funding CP - Complied with Partially 5. Management aspects of the Project or of its executing agency 6. Environmental covenants 7. Involuntar resettlement 8. Indigenous people 9. Monitoring, review and reporting 10. Implementation 11. Sectoral or cross-sectoral budgetary or other resource allocation 12. Sectoral or cross-sectoral regulatory/istitutional action 13. Other  - 20 - Table 11: Compliance with Operational Manual Statements No significant lack of compliance with applicable Bank Operational Manual Statements. Table 12: Bank Resources: Staff Inputs Stage of Planned Revised Actual project cycle Weeks US$000 Weeks US$000 Weeks US$000 Through Appraisal n/a n/a n/a n/a 47.6 122.5 Appraisal - Board n/a n/a n/a n/a 34.3 88.2 Board - Effectiveness n/a n/a n/a n/a 12.0 30.3 Supervision n/a n/a n/a n/a 101.7 281.8 Completion 22.0 40.0 18.0 35.7 TOTAL n/a n/a n/a n/a 213.6 558.5 Table indicates n/a where information is not available from the Bank's MIS. Completion Actuals are final estimates.  -21 - Table 13: Bank Resources: Missions Performance Rating Stage of Month/ Number Days Specialized Implemen- Develo- Types of problems Project Year of in staff skills tation pment Cycle Persons Field represented status impact Through Nov-85 3 18 FA, SE, Ec appraisal May-86 1 3 FA Jun-86 3 n/k FA, SE Appraisal Dec-86 6 12 FA, SE, LO, through L, O&M Board approval _ _ Board Mar-88 1 5 SE 2 special conditions of approval appraisal were action on through tariffs/revenues and effectiveness groundwater legislation. Supervision Jul-88 3 11 SE, FA, Ec 2 2 Slow start. Financial (part) performance weak and below covenanted targets. Increases in staff nos. Apr-89 2 8 FA, Ec (part) 2 2 Concern over financial weakness and institutional aspects, including GTN on-lending terms, staffing Jul-89 2 18 FA, SE 2 2 Sharp drop in project expenditures and very slow disbursements. Financial and institutional weaknesses. GTN on- lending terms Apr-90 6 22 FA, SE, 2 1 Some redesign due to Proc, Train changes in scope of project. Implementation progress appears to be picking up for works Jan-91 7 7 DC, FA, SE, 2 1 Re-occurrence of slow L, LCS implementation progress for works, due partly to design changes. Concem over poor construction quality  - 22 - Jun-92 5 14 FA, SE, 2 1 Pace of implementation LCS, Inst quickened. Some procurement problems remain. Shortfall on revenue covenant. On- lending (GTN to MMWSSB) not in compliance Jul-93 2 14 FA, SE 2 2 Implementation pace slowed again Jan-94 3 5 FA, SE 2 2 Continuing procurement problems. Redesign to reflect new source of supply (Veeranam) May-94 3 11 FA, SE S S Implementation (Mid- progressing reasonably term well but due to slow start Review) some works will remain unfinished. Sharp deterioration in financial performance due to drought Dec-94 2 12 FA, SE S S Slowing pace of implementation. Very slow on leak detection and repair Sep-95 3 12 FA, SE, S S Implications of request R&R for one-year extension considered Completion May-96 3 8 FA, SE, LCS _ _ Key to specialized staff skills: FA - Financial Analyst; SE - Sanitary Engineer; Ec - Economist; LO - Loan Officer; L - Lawyer; O&M - Operations and Maintenance specialist; Proc - Procurement specialist; Train - Training specialist; LCS - Low Cost Sanitation specialist; R&R - Relocation and Rehabilitation specialist; Inst - Institutional specialist; DC - Division Chief  -23 - APPENDIX A IMPLEMENTATION COMPLETION REPORT INDIA MADRAS WATER SUPPLY AND SANITATION PROJECT (Ln. 2846/Cr.1822-IN) COMPLETION MISSION AIDE MEMOIRE (May 11-19, 1996) I Background 1. A World Bank Mission visited Madras between 11 and 19-May-96 to review the project status at the completion of the project. The mission members were Messrs. Michael Whitbread (SA2AW), G.V.Abhyankar (SA2NA) and V.R. Iyer (Consultant). Mr. Whitbread (Financial Analyst and Project Task Manager) acted as mission leader and he and Mr. Abhyankar (Sanitary Engineer) remained in Madras for the mission's duration. Mr. Iyer (Low Cost Sanitation (LCS) expert) participated in the mission for the first week. 2. The original closing date for the Loan/Credit was 31-Dec-95. The Bank granted a short extension up to 31 -Mar-96 in order to ease the transition of works and studies between the project closing and the start of the Second Madras Water Supply Project (Ln.3907-IN) which became effective on 14-Feb-96. The completion mission focused on the collection of information necessary for the preparation of the project's Implementation Completion Report (ICR). The purpose of the ICR is to review the implementation progress of the project and draw out lesson for future lending in the sector. During the final supervision of the project in Sep-95 the mission briefed project officials on ICR contents and provided relevant documentation including another project's ICR, as an example. 3. The mission objectives were to: (a) identify and assemble, and otherwise request, data and written contributions from the Government of Tamil Nadu (GOTN) and the Madras Metropolitan Water Supply and Sewerage Board (MMWSSB); (b) review the physical progress and performance of the project; (c) review the progress and achievements for the introduction of LCS; (d) review the project's institutional strengthening achievements; (e) review the status of studies and consultant assignments; (f) identify the unfinished works and studies for which the Borrower will seek the agreement of the Bank for inclusion in the Second Project; (g) alert the Borrower to the remaining obligations under the legal agreements in the post-closure period; and (h) draw out specific lessons of experience for application in framing the proposed Third Madras Water Supply and Environmental Sanitation Project, which is under preparation.  - 24 - Appendix A 4. The mission held discussions with the officials of MMWSSB and GOTN (list of persons met is at Annex 2). Field visits were made to the saline intrusion barrier at Minjur wellfield, developed under the project, and to two sewage pumping stations in the city. The mission also visited the sites of the trial LCS facilities. All mission members wish to record their appreciation of the courtesies extended to them and for the cordial and cooperative spirit which prevailed through-out the mission. The mission appreciated the organizational difficulties for officials arising from the mission timing which coincided with the installation of a new Government following elections held earlier in the month. A wrap-up meeting was held in Delhi at the Ministry of Urban Affairs and Employment, with the Department of Economic Affairs participating, on 14-Jun-96. Summarv of main findings 5. Works. Most physical works for augmentation of water supply and improvements to water supply and sewerage envisaged at appraisal have been completed. The most important exceptions were that two of the original five checkdams and improvements to 14 of the 16 sewage pumping stations were not undertaken. A few other works were not completed but were at an advanced stage of construction at closure on 31-Mar-96. Master plan preparation (1991) and the proposal to develop a new source of supply at Veeranam (1993) necessitated capacity and design changes in the water treatment and distribution works and in sewage pumping stations. MMWSSB carried out these design changes prior to their construction. Because of these changes, the physical achievements have, in some cases, exceeded expectations at appraisal. However, because of delays in revising the designs and in procurement, some works were awarded close to the time of closure and are amongst those not finished. It is essential that these unfinished works are completed as they constitute integral elements of the city's comprehensive and long-term water supply and sewerage development program. The Borrower proposes to request the Bank to finance most of the unfinished works and studies under the Second Project (see Section IV below). 6. Institutional strengthening. Virtually all institutional strengthening objectives of the project have been achieved, and in many cases exceeded, and MMWSSB has been transformed into a more efficient and financially viable public utility. The project has assisted MMWSSB to develop its plans and planning capacity to address medium and long-term water supply and sanitation needs in Madras. Financial performance has greatly improved due to tariff reforms, improved billing and collections and cost reductions arising from greater operational efficiency, and all financial covenants under the project have been met. There is improved policy formulation. MMWSSB has commenced a program of privatization through contracting out of its functions (see para 36). Pilot studies of alternative LCS solutions were completed and evaluated although progress with subsequent implementation of a pilot LCS program of individual latrines has fallen short of the expectations at the time of appraisal. Overall improvements to management, personnel and finance were achieved during a period which witnessed several years of severe drought, during which time management's attention was greatly distracted. Nevertheless, despite good progress with institutional strengthening, as with works, there is still much to do and the program of improvements will continue with the Second Project.  -25 - Appendix A II Summary of Agreed Actions No. A-M Agreed Action By Whom By When para 1 23 Approach DEA to make a formal request to Bank MMWSSB, 15-Jun-96 for amendment to Legal Agreements of Second liaising with Project, and for selective retroactive financing GOTN 2 34 Undertake LCS monitoring MMWSSB Quarterly 3 35 Provide operational indicators to Bank, as MMWSSB Quarterly, required in accordance with Second Project or as Agreements agreed 4 38 (a) Submit the balance of withdrawal applications to MMWSSB 31-Jul-96 Bank 5 38 (b) Submit audits of SOEs for fiscal year 1995/96 to MMWSSB 31-Dec-96 Bank 6 38 (c) Submit annual audited accounts to Bank MMWSSB 31 -Dec-96 and annually 7 38 (d) Comply with covenants for period of Loan MMWSSB Continuous 8 38 (e) Assist with preparation of ICR by providing MMWSSB 30-Jun-96 and 39 required information to Bank 9 39 Bank to circulate draft ICR to GOTN/MMWSSB Bank 31-Aug-96 for coniment 10 39 Comments on draft ICR forwarded to Bank MMWSSB, Within 14 liaising with days of GOTN receipt 11 39 Borrowers' Evaluation forwarded to Bank MMWSSB 14-Sep-96 12 39 Draft final ICR sent to Bank management for Bank 14-Oct-96 review  - 26 - Appendix A III Status of Project at Closure Works and studies 7. The main works and studies that have been included in the project and which have not been completed as of the Loan Closing date of 31 -Mar-96 are listed below (see Annex 1 for further details). 8. Works/studies in progress. One checkdam; works at Tamaripakkam anicut (by PWD); clear water reservoir at Redhills Water Treatment Plant; mechanical sludge dewatering works at Redhills (bowl centrifuge); Archemedian screw pump at Koyambedu sewage treatment plant (STP); 16 sewage pumping stations; study of water distribution network analyses (Anna University); and, consultants' assignment for Veeranam transmission design. 9. Works awarded but not yet started. Clear water pumping station and pumps at Redhills (these works are subject to litigation). 10. Works/studies not yet awarded. Consultancy assignment for leak detection and repairs Phase 3 (15% of distribution system); study for design and detailed engineering for expansion and upgrading of Perungudi STP; a new checkdam at Minjur wellfields (through PWD, for which the Bank's no objection has not been obtained); and ancillary works at Redhills WTP (also through PWD, again for which the Bank's no objection has not been obtained). 11. The implementation status of these major works and studies is summarized below: (a) Checkdams: The work at the third unfinished check dam at Melchembedu is scheduled for completion in Jun-96. (b) Works at Tamarippakkam anicut. MMWSSB had paid in advance 100 % of the estimated cost to PWD (in 3 installments between Jan - Sep 95). The works are in progress. (c) Clear water reservoir at Redhills. The work is at an advanced stage of construction and is scheduled for completion in Jul-96. The work is being executed under 2 contracts. Also, MMWSSB has completed twin raw water rising mains for pumping Redhills water to the Redhills WTP (1200 mm mains, 1.25 km each). This work was included in the Second Project as a priority work for retroactive financing. Since the work was completed prior to 31-Mar-96, MMWSSB have requested that its financing may be included under the First Project. This request is being considered by the Bank. (d) Mechanical sludge dewatering at Redhills. In Mar-96, MMWSSB awarded this work to M/s Enkem Engineers, India (under ICB). A mobilization advance has been paid and physical works are about to commence. The Bank has agreed to finance the remaining work under the Second Project.  - 27 - Appefidix A (e) Archemedian screw pump at Koyambedu STP. In Mar-96, MMWSSB awarded the contract to M/s Spaan Babcock, Netherlands. The supply and installation work is scheduled for completion by Sep-96. (f) 16 sewage pumping stations. In Mar-96, MMWSSB awarded the work to MWs Botliboi Co. The contract period is 18 months. Physical works have just commenced at two of the stations. (g) Network analyses. MMWSSB awarded the consultancy to Anna University in Jun-94. Anna University has completed the design of the water transmission system and water distribution system for 4 zones. Since the time of the previous mission in Sep-95, the consultants have furnished draft design reports for 3 more distribution zones. Designs for all the 16 zones are scheduled for completion by Sep-96. These preliminary designs are being used as inputs by detailed engineering design consultants recently employed by MMWSSB under the Second Project. (h) Veeranam transmission system design, bid documents. The consultants (M/s ACER/Shah) employed by TWAD have completed the designs and prepared the bid documents. The bidding process is underway. The consultants will prepare bid evaluation reports. (i) Clear water pumping station at Redhills. In Mar-96, MMWSSB awarded the work to M/s IRCON. However, one of the other bidders has approached the High Court against the award and the Court has stayed execution of the contract. MMWSSB hopes to obtain the Court's clearance and commence the execution of the work by Jul-96. Although the outcome remains uncertain, MMWSSB has installed temporary pumpsets to start using the new treatment plant which currently is undergoing trials. (j) Leak detection and repairs (Phase 3). The Bank has given its no objection to award the consultancy. MMWSSB is now awaiting GOTN approval. The duration of the consultancy will be 15 months. The leak detection and repairs work is a high priority in MMWSSB's water conservation program. The mission expressed its concern regarding the delay in award that has taken place and expects that the GOTN will approve and MMWSSB will award the consultancy without any further delay. The Sep-95 mission was assured that the next leak detection consultancy study (Phase 4, covering 30% of the distribution system), to be financed under the Second Project, would also be invited by Jan-96. This has not been done. MMWSSB now proposes to invite proposals before Jul-96. (k) Perungudi STP expansion and up-grading. This study is now proposed to be financed under the Second Project. The evaluation of proposals is underway and MMWSSB expects to award the consultancy by Jul-96.  -28 - -28 Appendix A (1) Additional checkdam. The Sep-95 mission was informed that MMWSSB would complete the third of the five original checkdams (item (a) above), after which MMWSSB did not intend to take up the construction of additional checkdams under the project. However, this closure mission was informed that MMWSSB has decided to construct one more checkdam across Kortaliar River in the Minjur wellfields and, moreover, in Mar-96 had deposited the full amount of the estimated cost (Rs 29 million) with the PWD. MMWSSB did not seek nor obtain the Bank's no objection to proceeding prior to the Closing date. The mission could not agree to MMWSSB's request to finance the advance paid to PWD under the project. However, the mission indicated that the Bank management might be willing to consider financing this work under the Second Project, if a request is made. Consideration by the Bank would be subject to confirmnation of the technical feasibility, and clarification of the R&R position with dwellers along the river bank near the site and issues of submergence and illegal sand extraction occurring nearby and, of course, adherence to Bank procurement guidelines. Justification for the investment in the light of Krishna water arrival in the near future would also be required. (m) Ancillary works at Redhills. In Mar-96, MMWSSB paid an advance of 100% of the estimated cost of providing ancillary works at the Redhills WTP to PWD. These works include a compound wall, internal roads and an office building. Since MMWSSB did not seek nor obtain the Bank's no objection prior to the Closing date, the mission could not agree to financing of the advance paid to PWD from the project funds. However, the mission indicated that the Bank management may be willing to consider financing the work under the Second Project, if a request is made, but is concerned to emphasize the importance of adherence to Bank procurement guidelines. Institutional Strengthening 12. Through provision of training and technical assistance, and agreed policy and procedural reforms, the project was intended to strengthen MMWSSB and improve its performance as a public utility, and to improve the policy-making process for water supply and sanitation in the city generally. The major part of the agreed Operational Action Plan (OAP) was devoted to institutional strengthening. The original OAP was provided in Annex 12 of the SAR and, in accordance with the Agreements, was updated during the project; the final version was dated Jan- 95. 13. Almost all actions which were related to financial and institutional strengthening which were contained in the original OAP, or otherwise were intended to be undertaken, were carried out including: tariff reforms; billings and collections improvements; installation of an MIS; performance based budgeting; computerization, and improved operations and maintenance. The following are the exceptions: (a) the post of Controller of Finance and Management Information (original OAP para 9) was filled, although at Deputy level; (b) GOTN has not paid to  -29 - Appendix A MMWSSB the standpipe dues for MMC and TNSCB since 1992/93, (original OAP para 8); (c) the number of working meters (SAR para 7.03(f)) has probably fallen, contrary to intentions - this matter has been taken up under the Second Project whereby steps will be taken to introduce full meter coverage; (d) training of Board members has not been undertaken (SAR para 4.19) although, as the Board now contains only officials as members, it was agreed during the project that this item could be dropped from the OAP; (e) a rehabilitation fund (SAR para 5.17 and original OAP para 13) was not established, although there is no shortage of funds for rehabilitation and replacement purposes because of the much-improved finances of MMWSSB, and in consequence this item was also dropped from the OAP. Low Cost Sanitation 14. MMWSSB carried out a study of LCS needs, technical options and institutional requirements which was intended to precede the initiation of an LCS program in the Madras Metropolitan Area (MMA). A pilot program of 4,000 units was to follow the study to test the recommendations and to develop an expanded LCS program in the MMA. The study was undertaken by consultants (Consulting Engineering Services (CES) in association with Sulabh International) and a report, Low Cost Sanitation Alternatives for Madras City, was produced in Sep-91. The following LCS alternatives were considered and trial units constructed at selected sites within the city to assess their performance: (a) pour-flush waterseal household latrine with twin leach pits (28 households); (b) soak-pit for sullage disposal (6); (c) three types of waste disposal system for conimunity toilet complexes: septic tank and soak pit; septic tank and upflow filter; and holding tank with a pump to lift sewage to the nearest manhole; and (d) a small-bore sewer system for a community of 265 people. 15. The mission made field visits to: six household latrines in various locations; two community toilet complexes; and the site of the small-bore sewer system. The visits revealed that: the household latrines, constructed five years ago, were functioning well; the households fully utilized the facility and the women in particular valued the privacy provided by the facility; the upflow filter on one of the community latrines presented maintenance problems and was therefore abandoned in favor of the conventional disposal system; and the small-bore system was replaced by a conventional sewer following complaints from the people about frequent blockages in the system. Blockages were caused by the presence of solids, which in turn were caused by illegal connections to the small bore sewers which were made directly (instead of through the septic tanks) by some householders. 16. The consultants proposed an extended LCS program for the MMA, including the city. MMWSSB however considers that the technology of pour-flush latrines with leach pits is not suitable for unsewered pockets within the city, mainly for two reasons. First, there is insufficient  - 30- Appendix A space for the construction of these latrines. Second, latrines are designed to dispose of human excreta and not sullage, the disposal of which MMWSSB regards as equally crucial. MMWSSB has therefore decided not to adopt the latrines with leach pits technology, but to extend the sewer system. At the time of the study these small pockets numbered 342 in all, but 180 have been sewered subsequent to the study, and in another 30 works to provide sewers are in progress. Designs are ready to sewer the remaining 132. 17. Community latrines will continue to be supported in the city and elsewhere by MMWSSB where people do not have space for constructing latrine cubicles. It is proposed that these latrines will be constructed by the local bodies and will be connected to the sewer system laid by MMWSSB. MMWSSB regarded the experiment with small-bore sewers a failure and is not planning to continue with this solution. 18. MMWSSB's basic sanitation strategy for the city is therefore to provide sewers. MMWSSB has further concluded that LCS would not be appropriate for the adjacent urban areas also, and did not proceed to implement the pilot program of 4,000 LCS units envisaged at appraisal (SAR para 4.13). Instead, MMWSSB provided the funds for the construction of 58 additional public latrines to local bodies in the MMA. The total expenditure incurred by MMWSSB for the LCS program (including the 58 additional public latrines) was Rs 13.35 million against the budget of Rs 13.84 million. The financing was made from grant funds as envisaged at appraisal (SAR para 3.08). No contributions from the beneficiaries were sought by MMWSSB, contrary to the accepted practice of LCS programs elsewhere in India. Covenant compliance 19. Covenants include the special requirement that MMWSSB carries out the project in accordance with the updated OAP. The last agreed update of the OAP was Jan-95. No items of this Jan-95 OAP remained outstanding at Closure. With compliance of this OAP covenant, all covenants were in compliance at Closure although over the project period several covenants had been complied with late. Project costs and disbursements 20. The total project costs including contingencies at the time of appraisal were estimated at Rs 1508.0 million (US$112.2 million). At Closure the actual project cost was Rs 2271.4 million. The Rupee value of the total project cost has increased over the period due to the effects of inflation and its devaluation against the Dollar. 21. The Loan amount was US$53.0 million, and the Credit amount SDR 12.5 million (US$16.0 million equivalent), totaling US$69.0 million equivalent. Disbursements of the Loan as of 29-Apr-96 were US$35.7 million, while the Credit was fully disbursed by 1991 to the value of SDR 12.5 million (US$16.7 million equivalent), totaling US$ 52.4 million. US$17.3 million of the Loan remained undisbursed at that date. Consistent with normal procedure, the Bank has agreed to process withdrawal applications received in the four month period following Closure for eligible expenditures incurred up to the Closing date. It is anticipated that further  -31 - Appendix A disbursements, including those which will arise from withdrawal applications made in the period up to 31-Jul-96, will be US$8.1 million. Thus, overall savings of the Loan/Credit are expected to be about US$9.2 million (US$17.3 less US$8.1 million). IV Unfinished Works and Studies Proposed to be Included in the Second Project 22. Before the mission, MMWSSB had requested the Bank to finance some of the unfinished expenditure items under the Second Project. The Bank has accepted that those items which are within the Second Project Description may, in principle, be financed under the Second Project on the understanding that no additional funds can be made available. These unfinished items are for water distribution works, and studies. 23. However, certain of the unfinished items do not fall within the Description of the Second Project and, for these, an amendment to the Legal Agreements of the Second Project would be required before the Bank could consider financing them. These items are for water source works and sewerage (as set out below). During the mission MMWSSB and GOTN expressed the desire to have these unfinished expenditures included within the Second Project and propose to make a request to DEA to take up with the Bank an amendment to the Legal Agreements to change the Project Description. There will also need to be a request by DEA to the Bank to permit the associated retroactive financing for the expenditures which need a change in the Description where they were incurred, at the Borrowers' risk, after 01-Apr-96 and prior to an amendment being made. The DEA would need to make a formal request to the Bank for the amendment and associated retroactive financing. The expenditure items for which MMWSSB proposes to request financing under the Second Project are as follows (see Annex 1 for further details):  - 32 - Appendix A No. Description Category Estimated Remarks expenditure post 01-Apr-96 (Rs million) 1 Third checkdam Water supply 6.49 Requires a change in at Melchembedu source Second Project Description 2 Works at Redhills Water distribution 191.35 3 Improvements to Water distribution 85.79 water distribution system 4 Improvements to Sewage collection, 442.10 Requires a change in sewerage system conveyance and Second Project Description treatment 5 Studies Leak detection, 104.58 Veeranam pipeline, network analysis, Perungudi STP Total 830.31 24. The estimated post 01-Apr-96 expenditures which are proposed to be financed by the Second Project total Rs 830.31 million. To this figure should be added the following in order to reconcile with the grand total of required budget of Rs 833.63 million given in Annex 1: expenditures incurred under the project for which First Project funds remain to be claimed, which are Rs 1.79 million (these are for public fountains and R&R studies); and, expenditures of Rs 1.53 million which were contemplated under the project but were not undertaken for the lining of Poondi channel, which MMWSSB will now finance from its own funds. V Implementation Performance Views of the mission 25. Works. The implementation experience of the project was mixed, with the achievement of objectives being exceeded in some areas and falling short in others. Some works were not finished at Closure despite the project period of nearly ten years and in important areas progress was very slow, although it picked up as the project progressed.  - 33 - Appendix A 26. Where the works implementation progress was slow the reasons seemed to fall into two main categories. First, delays were experienced because of the need to redesign or reconsider certain facilities following the preparation of the master plan in 1991. This caused some amendments to the size/capacity of facilities. Additionally, the progress made with the Veeranam scheme subsequent to the appraisal of the project caused design changes, for example at Redhills and with parts of the water distribution system. Second, there were procedural delays, procurement delays and, initially, low priority given by MMWSSB to parts of the program, such as leak detection. Generally, once approvals had been given to the expenditures for which there were preparation delays, the implementation of the works proceeded without delay. Poor performance of contractors was also a reason for delay of some works such as the transmission mains to Manali and the third checkdam. 27. Initially MMWSSB wanted to undertake design work in-house and not to contract out, for example for the water distribution system and sewage pumping stations, which caused delays. Eventually this work was put out to consultants. 28. Institutional Strengthening. Virtually all the institutional strengthening parts of the project were executed before Closure. Examples include Finance, which achieved all its main targets, with all financial covenants in compliance and many important improvements undertaken. MMWSSB has pursued contracting out of some of its operation and maintenance functions (see para 36). 29. Both MMWSSB and GOTN addressed the important issue of ground water utilization at an early stage of the project and pioneering legislation was introduced. MMWSSB has continued to monitor the effects of groundwater legislation on the quality and location of the aquifers. This innovative legislation may form the basis for State-wide coverage, and could be studied by other cities and states in India. 30. Overall the institutional strengthening performance was good and MMWSSB has emerged from the project as a significantly improved public utility. 31. LCS. The LCS program initially required an assessment of needs, technology and requirements. A trial study was carried out in a satisfactory manner at an early stage and an evaluation was undertaken of the experiment. The recommendation of the consultants to undertake a pilot program of latrine construction was not adopted by MMWSSB. However, MMWSSB did provide a total of 58 further community latrines and as a result the budgeted funds of over Rs.13 million for LCS under the project were utilized. Generally, for MMWSSB, the provision of individual LCS latrines was a reluctant endeavor. This finding has important implications for the preparation of the Third Project which contains a substantial LCS component.  - 34 - Appendix A Views of the Borrower 32. MMWSSB and GOTN indicated that they would reserve their judgment on the implementation performance under the project until the production of the Borrower's Evaluation for the ICR. VI Operational Plan, Privatization and Sustainability 33. Some of the works under the project have been completed and in operation for some time. These include, for water supply, source works such as tubewells and checkdams at the wellfields, river linkages and elements of the distribution system. They also include some sewage collection and treatment. For these facilities, operational arrangements are already in place and are satisfactory. For works not completed such as the Redhills treatment plant and some sewage pumping stations, MMWSSB is proposing operational arrangements which are satisfactory to the mission which include contracting out to the private sector (see para 36 below). Injection wells are operational, and monitoring of saline intrusions is already being undertaken to determine the quality of the aquifer at selected locations. 34. MMWSSB is not currently monitoring the functioning of the LCS public latrines, and had expected the local bodies concerned to be primarily responsible. However, since the construction of these latrines was financed from Project, MMWSSB agreed to monitor their performance according to formats developed for this purpose by the consultants (Annex 12.2, Vol.II of the report, LCS Alternatives for Madras City). 35. Operational Indicators. In view of the highly integrated nature of the investments provided under the project, individual operational indicators are of limited value. For example, the output of the Redhills treatment plant can readily be measured by treated water quantity but without knowledge of the conjunctive output of the Kilpauk plant these data have limited meaning. Accordingly, it is proposed that operational indicators would be generated for MMWSSB as a whole, including both physical and financial indicators. Indicators have been agreed with the Bank for the Second Project and these would be the basis for the on-going monitoring of MMWSSB's performance. 36. Privatization. MMWSSB have a program of contracting-out the operations of certain facilities to the private sector. 60% of the sewerage pumping stations' operations and one small sewage treatment plant (STP) have been privatized. MMWSSB have endeavored to secure private operators for other STPs although without success. These are all operations and maintenance contracts, not involving the private operators in any direct revenue collection. The efficiency gains and cost savings to the MMWSSB are significant. Some of the facilities provided under the project will be operated by the private sector under similar arrangements. Included in these proposals are the sewage treatment plants and the Redhills water treatment plant. The mission welcomed these initiatives by MMWSSB.  -35 - Appendix A 37. Sustainabiity. Financial sustainability is anticipated due to the sound financial performance of MMWSSB achieved by the time of Closure. This performance is likely to be further improved under the implementation of the Second Project which has financial performance covenants which are developed from those of the First Project. The technical capability of MMWSSB is now much improved. The additional facilities will present the entity with no serious difficulties in operations and maintenance. In any event, the active pursuit of privatization solutions for operation and maintenance of some of these facilities also gives confidence that the operations phase will continue in an orderly and efficient manner. Again, the Second Project, and later if implemented, the Third Project which is under preparation, will continue the Bank's support for the MMWSSB ensuring that continued emphasis is placed on sound management of the entity. Overall, therefore, the prospects for sustainability of the investments made are good. VII Follow-up Actions in the Post-closure Period 38. The mission reminded the Borrower of the project obligations which remain, including those entered into under the Agreements, during the post-closure period. These are: (a) all withdrawal applications should be submitted to the Bank for eligible expenditures incurred up to 31-Mar-96 by 31-Jul-96; (b) audits of SOEs for the fiscal year 1995/96 should be submitted in accordance with the audit covenant by 31-Dec-96; (c) additionally, the audited accounts will continue to be required to be submitted to the Bank in forthcoming years, although this is also a requirement of the Agreements of the Second Project; (d) as the Loan is repayable in 20 years, in accordance with the Agreements the Borrower is obliged to comply with covenants, as appropriate, during this period; and, (e) the Borrower will continue to assist with the preparation of the ICR in accordance with the agreements reached with the mission (see Section VIII below) and, additionally, the Borrower should prepare its own Evaluation of the project for inclusion in the ICR which was agreed to be submitted to the Bank by 14-Sep-96.  -36 - Appendix A VIII Program for ICR Preparation 39. The following program for ICR preparation was agreed: Agreed Action By Whom By When Data requested by the mission and not supplied at the MMWSSB 30-Jun-96 time of the mission, including a map showing schemes implemented, to be forwarded to Bank. Draft of ICR (Bank portion including tables) to be Bank 31-Aug-96 forwarded to Borrower for comment. Comments on draft ICR to be forwarded to Bank. MMWSSB, liaising Within 14 with GOTN days of receipt of draft ICR Borrower's Evaluation to be sent to Bank. MMWSSB 14-Sep-96 Final draft of ICR (complete version including Bank 14-Oct-96 Borrower's Evaluation) to Bank management for review.  -37 - Appendix A Annex 1 Impmenatlon Completion Status 1 Physical & FInancisi All Amounts in Rs. Millon BLNo. Deschption Physcal Prorness Financial Prosgrss % Completion Estimated Cost Estimate Budget Proposed FlnancigV Mar-96 Compi. Date SAR Revised Actual As Required Word Bank GOTN / #2 Mar46 31-Mar-6 9M-i NF2 MUWSSB I AwmenntationofWtrSrdSvb____ 1.1 Conssudln of tube wefit 30 nos) 100 Competed 113.18 113.34 113.34 100% 1.2 TransfgssDun mah fromtubewebito a pont nmarRedhils t.35Km) 100 Completed 17S.07 120.43 120.43 100% 1.3 Transmlsslon mate: Redhil9-Kipauk 114W0mmn dia, L- 11.8 kml 100 Dropped 51.34 0.00 0.00 NA 2.1 Construction of Check dams- S Nt[ C u2, UC =1, Dmpped 925 S Sep-08 87.8i 50.49 44.00 t7% 8.49 4.15 2.34 2.2 Atrni Kortoiar Lhik EBy P5WO 0 DOropped 100.48 0.00 0.00 NA Oothukottat anslut 100 Compieted 15.33 15.33 100% Outlet from Kirsna canal i rajan Odai aS Jun-90 6.12 6.12 100% Rehab of Tsmartpakkano anclut 0 Oer,96 31.00 31.00 100% Rehab of uppersupply channel 100 Completed 4.19 4.19 100% 3.1 LlIg Poondi Charaet [ Lenrth of requimd irg educedu 65 Mar-07 59.44 6.00 4.65 75% 1.53 0.00 1.53 3.2 Redhils : Water Teatmrent Plant 100 Completd 96.45 326.30 303.19 93% 23.11 14.79 8.32 :Clearwatermseiroor (2nosX13MQ aS Jul-96 69.50 36.04 52% 33.04 21.47 12.07 :ClearwaterPumping stan & pumps # 1 0 Dec-97 111.78 0.00 0% 111.78 71.04 40.24 Mechanical sludge Dewatering (Bowl conlrlfate) 0 Oct-96 24.86 1.94 8% 22.92 22.92 0.00 Raw Water Maies (2X1200m, L=1.25 Km) completd 27.10 27.10 100% 3.3 Transmission male to Manali amea ( 1000 mmPSc, L= 5.2Km) 95 Jul-96 26.91 36.40 28.93 79% 7.47 4.7S 2.69 3.4 strengthening the eclOsig welitields 100 Completed 73.69 102.06 102.06 100% 3.5 Provirtiro a banier against Saline irtnusbon 100 Completed 107.55 14.55 14.55 100% 3.6 Upgrading the new Well fields 100 Completed 22.59 22.61 22.81 100% Sub Total 1 904.49 1092.42 675.58 S1% 206.04 0.00 13,965 67.19 r Improvemnts lo water DLstribution system 1.1 Addi. UGT at KPS and KK Nagar(lotal cap= 14.5 MU 100 Completed 17.63 21.65 21.65 100% 1.2 Pumping Station at KPS and KK Nagar 100 Completed 22.05 1G.58 15.58 100% 2.1 Laying 750 mm Cl maln fmm KPSl oKKNagarlL-12.5km( 100 Completed 55.50 43.16 43.16 100% 3.1 Trans maln: KK Nagarto Virugambakkam, Salgrarnaom 100 Completed 4.95 3.51 3.51 100% 3.2 Rehab of Dist. Network [ Replacing old 100 S 150 mm pipes, L=-379Km) 96 Jun-96 67.05 242.02 207.72 86% 3510 22.46 12.64 3.3 Etoenslons to Dist system 100mm & 150 mm pipes,L=141 Km) 70 JAu-96 10.42 90.81 64.59 71% 26.22 16.7 9.44 3.4 Providirg Public funtains [ 1000nosJ, Rehabof Steeltanks, IM-II HPs 100 Completed 3.68 5.37 3.70 69% 1.67 1.67 0.00 3.5 Stmngthening of tonk mains[ secondary trans& local dist . L= 12.1 Km) 94 Jul-96 29.35 107.31 90.31 4% 1700 10.SS 2 Sub-Total 2 531.21 451.22 85% 7999 .7 5012 2920 # 1 = work not yet awarded (due to High Court Stay) # 2 = SAR estimate updated by First mview Misshon [ July 19881 and incimdes physical and price conlingenoces. Dhsbursement % for M-2 are Works= 64, (Assumed) Goods and Studis- 100.  -38 - Appendix A Annex 1 lmplnntation Completon Status Physical & Finsacial All Amounts in Rs. Million SlI.No. Description Physical Progress Financial Progress % Competn Estimated Cost Estimate Budget Proposed Finandng * Mar.96 Cormp Date SAR Revised Actual As % Required World Bank GOTi/ # 2 Mar.96 31-Mar-96 M-1 M-2 MMWSSB III imr mvements to sewerere system 1 Inmproveents to sewagoe cotiedion a treatment systenms 90 Dec-96 163.48 594.00 541.61 93% 52.39 33.53 18.86 ( hidudes item Vt I - Archinedin screw pump at Koyambedu STP Dec-96 0.00 9.44 0.00 0% 9.44 9.44 0.00 * Pemngiudai STP, ConsulUnt sturdy (Tahal+TaU) t 1 Dec-96 0.00 14.60 0.00 0% 14.60 14.60 0.00 2 lImprovementstoseletewagepumopingstations(l8NosI 0 Sep-97 33.82 427.00 48.73 11% 380.27 243.37 136.90 OtlerWorks :Sadapet tomce main, Shoit teml , Consulancy 16SPS 100 Completed 40.64 40.64 100% 3 Saigarmam:Coection system, SPS and Force mai 100 Compltted 42.28 56.56 56.6 IOD% 4 Low lyrin areas: CoHedbin. transmissin, disposala nsgements 100 Completed | 6.73 6.75 6.75 198% Sub -Total 3 1148.99 692.29 61% 456.70 0.00 300.94 155.76 IV Institutinnal strengthening | 100 | Completed 1 139.28 225.97 192.80 85% (Inrludes Pilot Leek detedtion 10 % Dist systeml I Leakdetecbon & replrsI Phase 2: 10 % Dist. systeml 100 Completed 33.10 33.10 100% 0.00 0.00 Leak detectlon & repairs I Phase 3:15 % DMt. system] 0 Dec-97 80.00 0.00 0% 80.00 80.00 0.00 (STCIACER top ranked. Award proposal pendit wilh GTi, Addibond Engineering Consuitancies 0.00 Veeranam: Feasibity trans. system, R &R [ Tata, Econ.Perspe.J 100 Completed 9.82 9.82 100% Veerenanm: Detailed Engg Trans. pipeline I TWAD, ACER/Shahl 70 Jul-96 23.75 14.35 60% 9.40 9.40 0.00 Madras Cby Water Trans, & Dist. Network aenalyses( Annal 50 Sep-96 1.69 1.11 66% 0.58 0.s8 0o.0 Madras Ill: R&R [ConsumerAction Group] 100 Completed 0.59 0.47 S0% 0.12 0.12 0.00 Flood Water Conservatbin storage [Mott MacDonald[ 100 Completed 0.62 0.62 100% Land 100 Completed 5.29 0.00 0.00 V Addtiional Works [ Later merged in tem 111(1) abovel 0.00 0.00 0.00 Sub - Total 4 144.64 375.54 252.27 67% 90.10 0.12 89.98 0.00 Grand Total 1508.03 3138.16 2271.36 73% 833.63 1.79 580.70 251.14 I I_ t 1 - work not yet awarded #2 SAR eslinate updated by Frist review Missin IJuly 19891 and indLudes physical and price contingencies. Disbursement % ior M-2 are: Works= 64, (Assumed) Goods and studies= 100.  -39 - Appendix A Annex 2 List of Key Persons Met GOTN Secretary, Municipal Administration and Water Supply - Mrs. S. Malathi MMWSSB Chairperson and Managing Director - Ms. Shantha Sheela Nair Executive Director - Dr. T.V.Somanathan Finance Director - Mr. P. Shanmugamn Chief Engineer, Resource Planning - Mr. R.M. Gandhi Officer on Special Duty, World Bank Projects -Mr. Nambi Ayyadurai Comptroller of Finance - Mr. V. Venkateswaran  - 40 - APPENDIX B BORROWER'S EVALUATION (This Appendix contains the Evaluation by CMWSSB and the GOTN. Although retyped, it has been included here unedited apart from the corrections to a few minor typing errors in the original. The evaluation was received by the Bank on January 10, 1997.) EVALUATION REPORT OF METROWATER ON INDIA: CHENNAI (EARLIER MADRAS) WATER SUPPLY & SANITATION PROJECT (Ln.2846/Cr.1822-IN) 1. Project Formulation & Appraisal Based on the UNDP/UNTACD aided Hydrogeological and Artificial Recharge studies carried out in 1974-85 and the Master Plan for management of water supply and waste water in Chennai city prepared in 1978, the Madras Water Supply and Sanitation project was formulated with the following objectives: (a) increase water supply by about 35% and improve reliability (b) improve and extend water supply distribution (c) improve and extend sewage collection and treatment systems 1.1 This Project was posed to the World Bank for fund assistance in 1985. Preparation missions of the World Bank evaluated this Project and subsequently the Project was finalized including the following further objectives - (a) make better use of existing resources and to develop a plan which addresses the medium and long term water supply and sewerage; (b) improve billing and collection, increased tariffs; (c) strengthen CMWSSB's institutional capacity; and (d) initiate a program for low cost sanitation. 1.2 This Project was appraised by the Bank in December 1986; negotiations were completed in May 1987; agreement was signed in December 1987; and it was made effective in March 1988. 2.0 Project Cost and Financing: The Project cost at appraisal was Rs. 1508.0 million or US$112.2 million. A credit in the amount of SDR 12.5 million (equivalent to US$16.0 million) and loan of US$53.0 million were approved by the Bank. Remaining cost was to be met by internal cash generation to the extent of US$39.0 million and GOTN grant/loan of US$4.2 million.  -41 - APPENDIX B 3.0 Implementation: This Project was scheduled to be implemented over a period of 8 years through 1987-95. Three months extension was given beyond December 31, 1995 and the Project was closed on March 31, 1996. 3.1 On closing the expenditure of the project was Rs. 2464.2 million. Credit to the amount of SDR 12.5 million (equivalent to US$16.0 million) was fully utilized; final disbursement took place on August 19, 1996; and total loan amounting to Rs. 1761.94 million equivalent to US$48.3 millions was disbursed; and US$4.7 million remained undisbursed. 3.2 All works and studies were completed either as contemplated at appraisal or updated in subsequent mission's visit; except the work of improvements to 16 sewage pumping stations which had a delayed start awaiting completion of Master plan update and subsequently another revision to detailed engineering including expected additional flows consequent on augmentation of water supply to the city with Veeranam tank as source and delay in clearance of bid document by Bank by nearly 6 months. An expenditure of Rs. 2464.2 million which exceeded the appraisal estimate by Rs. 964.2 million or 64% was completed resulting in implementation of more quantities under works and studies. Details are furnished in Annex-l of the Completion Mission Aide-Memoire. 4.0 Achievements through the Project 4.1 Three new well fields were developed, pumps and pipeline grids provided to deliver ground water to city; and flood flow of Araniar River was diverted to city storage reservoir. City water supply was augmented by 83 mld as against envisaged 102 mld; the shortfall was due to conjunctive use of surface and ground water sources which was expected to save about 20 mld of water lost to evaporation and which was found not feasible due to recurring drought and unpredictable monsoons. Water consolidation measures were initiated by completing 2 check dams, with the third one 80% completed. Two more check dams could not be taken up because in one location the site was found unsuitable for construction due to illicit sand quarrying and in the other location site is likely to be submerged when a new reservoir is constructed at Thirukandalam to store Krishna water. These check dams have enabled stabilization of yield from four well fields. 4.2 All works under Improvements to water distribution system were completed and as against 35 km length envisaged at appraisal, 430 km. was actually completed. 4.3 All works under improvements to sewerage system were completed with the exception of improvements to 16 select sewage pumping stations. As against 61 km. length of sewers proposed at appraisal, 290 km was actually completed. With concurrence from World Bank's Mission, operational efficiency of existing sewerage systems was improved. Performance of sewage treatment plants were improved; operational constraints in sewage pumping stations and pumping mains removed; and mechanized desilting of sewers carried out with procurement of 10 drag bucket machines and 6 jet rodding machines.  -42 - APPENDIX B 4.4 All studies envisaged at appraisal were completed. Consultancy study on "Low Cost Sanitation Alternatives" was completed; design criteria developed and tested in the field by constructing demonstration units and monitoring performance over a year; however, with the concurrence of World Bank's supervision mission instead of constructing 4,000 toilets in individual premises, all public conveniences were constructed with grant money to develop an expanded LCS program in MMA. Additionally 9 more studies were completed. 4.5 As such works and studies which remained incomplete (except improvements to 16 sewage pumping stations) on closing date are actually additional works or increased quantities not envisaged at appraisal. 5.0 Policy Initiatives 5.1 Water consolidation by implementing innovative rain water harvesting measures to recharge ground water in the plot of premises was commissioned. Planning regulation were revised incorporating rain harvesting arrangements without which new multistoried or commercial complexes cannot be con'structed now. All Central Air Conditioned buildings have been asked to use renovative sewage for cooling purposes. 5.2 In this project period, importance was given to extend sewer to most parts of the city. About 576 km. length of sewers were added which increased the total length of sewers in the city by 44%. The direct benefit was a marked reduction in water borne diseases such as cholera etc. 5.3 A quality control system was introduced and strengthened. The work of the Organization was extended beyond merely providing water mains and sewers to address consumer needs. A Superintending Engineer was appointed exclusively to monitor the quality control aspects. 5.4 Contract management of services such as operation and maintenance of sewage pumping stations, well fields, effecting sewer connections, and billing and collections were initiated and expanded. It is proposed to extend this further to operation and maintenance of a new water treatment plant at Redhills. 5.5 The Organization has moved from a typical Government type organization to commercially oriented public sector organization which is self-supporting, responsive and accountable for the quality of its services. This emphasis on customer orientation has been a part of our response to growing consumerism. 5.6 A Training Center was commissioned and training was made an integral part of the human resources development strategy. 5.7 Improvements carried out in the sewage treatment plants under the Bank Project inspired the concept of treating sewage as a resource and the possibility of recycling it for supply to industries. This concept has been expanded by taking up a project to supply 100 mld of renovated sewage to industries in Manali area.  -43 - APPENDIX B 6.0 Institutional Capability 6.1 Metrowater has build up considerable technical capability and expertise during the project period. Metrowater is now approached by other organizations for technical advice and taking up consultancies. GOTN has permitted Metrowater to extend its activity to taking up consultancies. Already two consultancies were completed. 6.2 Technical wing was trained to prepare and implement large projects with external fund assistance. Consultancy services are also now offered with the built up expertise. 6.3 The organization was able to build a base for strong financial management with improved billing and collections, consequent to rationalization of tariff structure. 6.4 Computer literacy was improved and a full fledged data processing unit was established with a Data Processing Manager in charge. 6.5 The operation and maintenance of water supply and sewer system has been further improved by mechanizing the cleaning operations. The institution made a strategic move from large dependence on human labor to extensive mechanization of operations. 6.6 Human resources development was given special priority. A unique medical welfare fund was created to advance financial assistance to the labor to avail the best possible medical facilities in specialty hospitals which proved helpful in promoting cordial industrial relations. A post of Industrial Relations Manager was created. Temporary employment or employing casual laborers were completely dispensed with. 6.7 Organization has moved forward from supporting a large labor force for operations to greater mechanization with reduced labor force. Metrowater is now managing a bigger system with a reduced staff. The personnel cost as a ratio of the total operating cost has reduced significantly from 62% in 1987-88 to 44% in 95-96. The staff productivity index (SPI) has registered a sharp decline from 61/'000 connection in 1987-88 to 26/'000 connection in 1996. 7.0 Key Lessons Learnt 7.1 Procurement of Works 7.1.1 The Bank's policy and guidelines on procurement keep changing as do the perception on the procurement guidelines. At least in the case of improvements to 16 sewage pumping stations such changes contributed to a delay of about 6 months in clearing bid documents by the Bank. We need guidelines which are clear simple and easy to understand.  - 44 - APPENDIX B 7.2 Procurement of consultants 7.2.1 The present policy of the Bank lacks clarity on what occasions demand a consultancy and what not. Besides, there are some lacunae in the guidelines which make it difficult to deal with nonadherence to the prescribed schedule. This has led to delays in many consultancies. The Bank should recommend clear-cut methods to deal with errant consultants which can help build in greater accountability in consultancies. 7.2.2 On the one hand the Bank expects the borrower to furnish detailed justification on the need for giving sole source procurement of consultancy for a study while on the other hand the missions during their visit recommend awarding additional work to an ongoing consultant for amounts which normally will require invitation of competitive bids. This poses problems in compliance. 7.2.3 There are several consultants who get shortlisted by Metrowater but do not get even a single contract. It would be helpful if the Bank shared its own evaluation of the performance of consultancy firms worldwide and kept borrowers informed on the capabilities of the individual consultants engaged in similar studies which can be used by the borrower for shortlisting. 7.3 Continuity in Task Managers and other members on the team will further the cause of consistency in assessment of alternatives and hence speedy implementation. As noted by the Bank, high turnover of task managers did result in a lack of continuity on the Bank's stand on certain policy issues. 7.4 The timing and number of missions' visits should be synchronized in such a way that the bulk of the policy issues can be cleared during mission visits. Sometimes major policy clearances get bogged down in protracted correspondence with the Bank. 8. Information Sharing 8.1 The Bank may share information on performance of other similar projects with the borrowers including successes and failure. The Bank may consider sharing this information through a periodical bulletin. 8.2 The Bank can be a nodal authority for information sharing the project management worldwide by implementing agencies. 8.3 As the Bank is handling massive projects internationally, it can plan a vital role in creating a forum for water utility organisations to come together and share their thoughts and experiences.  -45 - APPENDIX B 9. Composition of Missions 9.1 The Bank may include a member from other implementing agencies in the missions which will engender a more meaningful exchange between different executing agencies. 9.2 The Bank may also consider complementing the missions with persons who have actual field experience of implementing similar projects in developing countries.  IBRD 19905 PABITTA~~~~) BANGLADESHIND A I N D I A MADRAS WATER SUPPLY AND SANITATION PROJECT TA / r rONAIIG,.\ T=GAAALA,PAA.AL -> & f T WATER SUPPLY AND BRO0,Atpdr7 l o SEWERAGE FACILITIES KANNIGAIPER 10'~~~~~ /o E--- BK B. WELLS SRI LANKAIN S 4# ~~~~~~~~~~~~~~~~~~~~~~~~~~~PROLECT FEATURES IjjWELL F ELDS * WELLS o RECHARGE WELLS di ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~WATER TRANSMBISSOF. MEAINS ,o :< X + ~\MANALI t NEW CANALS NDUR ASTAL AUGRADEG CHANNEL WATER TREATMEENT PLAN4T BOOSTER PUMPING STATIONS - CHECK DANMS Rd HrSom /EXISTNG FEATURES. T,:.,_ ~~~~~~~~~~~~~~~~~7WELL F,ELDS P.. ~~~~~~~~~E*WELLS WATER TRANSMISSION MAIN.S WATER TREATMENT PLANT