Philippines - Angat Water Supply Optimization Project

 Angat water supply optimization project Report No: ; Type: Report/Evaluation Memorandum ; Country: Philippines; Region: East Asia And Pacific; Sector: Urban Water Supply; Major Sector: Water Supply & Sanitation; ProjectID: P004574 The Implementation Completion Report (ICR) on the Philippines Angat Water Supply Optimization Project (Loan 3124-PH, approved in FY90), prepared by the East Asia and Pacific Regional Office, was reviewed by the Operations Evaluation Department (OED). The Borrower contribution is included as Appendix A. The loan of US$40 million was closed on May 8, 1996, 5 months behind schedule, at which time a balance of US$2.4 million was canceled. Cofinancing was provided by the Asian Development Bank (ADB) and the Overseas Economic Cooperation Fund of Japan (OECF). No comments were received from the cofinanciers. The main objective of the project was to expand the water availability to meet the Metro Manila area's estimated water demand through the year 2000. The specific objective was to increase the Metropolitan Waterworks and Sewerage System's (MWSS) service coverage to 75 percent of the area's population, with an emphasis on poor neighborhoods. The project's second objective was to improve the efficiency of MWSS' operations and strengthen its finances. The physical objectives were to be achieved by constructing a complex water conveyance system, including a tunnel and an aqueduct, and a new water system in the Province of Bulacan. Cofinanced components included treatment and distribution facilities for the system. The institutional objectives required tariff increases and rehabilitation of the existing system to achieve lower unaccounted-for water levels. Physical achievements were disappointing, largely because of delays in non-Bank financed components. About 75 percent of the Bank-financed components were completed. The water conveyance system was completed in October 1993, only nine months behind schedule, but implementation of the Bulacan water system was delayed and was eventually dropped from the project; it is now being implemented with MWSS' own funding. The treatment and distribution system components financed by the ADB and OECF were delayed and are expected to be completed by the end of 1998, five years behind schedule. As a result, population coverage is only 67 percent, below the target level; unaccounted-for water remains high, at the pre-project level of about 55 percent; and the number of connections was slightly lower than the target. Institutional achievements were limited. Tariffs have not been increased since 1992 although inflation has been high. Inadequate tariff increases and delays in expanding the distribution system have resulted in revenues from water sales that were only 70 percent of the target level. The financial performance of MWSS has deteriorated since 1992: in 1995, the revenues were some 30 percent below the projected level. The economic rate of return, estimated at 15 percent during project appraisal, was not recalculated in the ICR due to the uncertainty about the completion date of the cofinanced components. OED rates the project's outcome as marginally unsatisfactory and its institutional development impact as moderate. The sustainability of benefits is rated as uncertain. The ICR ratings are satisfactory, substantial and likely, respectively. OED has lower ratings because, although most of the physical objectives of the components financed by the Bank were achieved, the overall objectives of increasing service coverage and improving institutional performance (better financial performance and reduced water losses), have not been met. OED rates sustainability as uncertain because MWSS' ongoing plans for improving its performance and privatizing its operations hold good potential, but they have yet to be implemented. OED rates Bank performance as satisfactory. The most important lesson from this project is that more balance is needed between expenditures to increase water availability (new projects) and expenditures to reduce water losses through enhanced maintenance. This project focused all its attention on new investment to expand capacity but failed to address effectively the rehabilitation needs of the existing distribution system. This led to inadequate water availability, weak revenue base, and continued operational weakness. Another lesson is that a commitment by the entity to effect necessary tariff increases and undertake demanding programs for efficiency improvements should be obtained prior to the agreement on funding for new investments. The ICR is of satisfactory quality. The project may be audited at a later date.