Argentina - Water Supply Project

 ICRR 10081 Report Number : ICRR10081 ICR Review Operations Evaluation Department 1. Project Data : OEDID: OEDID : L2641 Project ID : P005945 Project Name : Argentina Water Supply Project Country : Argentina Sector : Urban Water Supply L/C Number : Ln. 2641-AR Partners involved : Prepared by : Tauno K. Skytta, OEDST Reviewed by : Alain Barbu Group Manager : Roger Slade Date Posted : 07/30/1998 2. Project Objectives, Financing, Costs and Components : Objectives: As per the government's sector objectives of financially strengthening government enterprises and improving public sector management, the objectives were as follows: (i) rehabilitate deteriorating infrastructure, replace run down facilities, and extend water services to new areas; (ii) prepare a national water and sanitation plan to provide the necessary institutional framework to permit the newly decentralised system to function in a more efficient manner; and (iii) initiate national operational improvements program to promote water conservation through rehabilitation of water systems, production and consumption metering, and institutional strengthening of water utilities. In 1993, in agreement with the Bank, project objectives were "adjusted" to support the government's new privatisation strategy. Components: The project components were divided into three main areas to be executed by seven implementation agencies: (i) preparation of the national water and sanitation plan; (ii) operational improvements, rehabilitation, and system extension in Metropolitan Buenos Aires, and in the cities of Rosario and Cordoba; and (iii) studies and technical assistance for improving operations of the participating sector agencies. Costs: (i) appraisal estimate; US $128.4 million (equivalent), and (ii) actual; US$65.0 million. Financing: Bank loan of US$60 million (equivalent), approved in FY86. As per the adjustment of objectives, loan was reduced twice (in 1993 and 1995) at the request of the GOA by a total of US$20 million, and finally the undisbursed balance of US$1.6 million was cancelled at the loan closing. 3. Achievement of Relevant Objectives : The project experienced a major initial delay of about three years due to procurement problems and prevailing hyper-inflation. The national water and sanitation plan was prepared but was not implemented due to the change in sector strategy in 1993. All physical components in Rosario were fully implemented, but most of them in Buenos Aires and about 60 % in Cordoba were abondened because of the change in project goals . After the change in national strategies, it was decided to privatise several water operations including those in the project area, resulting in the abandonment of institutional strengthening strategies proposed by several project financed studies . Some of the loan proceeds were reallocated to fund the analyses and the preparation of bidding documents to support the privatization process in Buenos Aires . The privatization support in the other two project cities was supported by a Bank funded follow-on project. Newly appointed concessionaires adopted more ambitious improvement plans than envisaged in SAR and operational efficiency targets were met soon thereafter, in many cases even exceeded . 4. Significant Achievements : The financial performance of the three privatized utilities shows significant improvements over the SAR projections. All three concessionaires continue to implement operational improvement programs with more demanding performance indicators than those stipulated in SAR and effectiveness of their operations has improved; as a result, consumer tariffs have been reduced but the operational revenues have gone up. The Rosario sub-project which met most institutional strengthening and all physical goals achieved a recalculated IRR of 44%. The Bank showed flexibility in agreeing to reallocate funds to assist the privatisation process in Buenos Aires and played a strong catalytic role in other cities through a follow-on project. 5. Significant Shortcomings : No significant shortcomings. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Unsatisfactory Satisfactory Overall, the project as revised helped improve the sector performance beyond the goals set in SAR. Institutional Dev .: Negligible Modest Privatization support after 1993 contributed to a promising IDI program . Sustainability : Likely Likely Bank Performance : Deficient Unsatisfactory Despite deficiences during project appraisal and supervision, Bank subsequently provided strong support to the privatization process; in this project, however, the Bank should have formalized the revision of the project objectives. Borrower Perf .: Deficient Unsatisfactory Project preparation was poorly carried out and its implementation was slow initially. Compliance with loan covenants was also deficient. Quality of ICR : Satisfactory 7. Lessons of Broad Applicability : ICR presents many important project and sector specific lessons that have broader application as well for projects aiming at capacity building and privatizing operations. The following lesson is added: A financially strapped but committed government can achieve major policy improvements and efficiency enhancements with Bank support limited to financing of the institutional strengthening components and privatisation process. 8. Audit Recommended? Yes No Why? Experience from this project could significantly serve other water utility projects considering privatization option. 9. Comments on Quality of ICR : The ICR is satisfactory. It contains the information necessary to assess the project's achievements, but the Aide Memoire is missing.